Chapter 2 Flashcards
Ratio analysis
expresses the relationship among selected items of financial statement data
ratio
expresses the mathematical relationship between one quantity and another.
profitability Ratios
measure the income/operating success of a company for a given period of time
liquidity ratios
measures short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash
solvency ratios
measure the ability of the company to survive over a long period of time
Intracompany comparisons
covering two years for the same company
Industry-average comparisons
based on average ratios for particular industries.
Intercompany comparisons
based on comparisons with a competitor in the same industry.
The income statement reveals
how successful the company is at generating a profit from its sales.
The income statement reports
the amount earned during the period (revenues) and the costs incurred during the period (expenses).
Profitability ratios
measure the operating success of a company for a given period of time.
Earnings per share (EPS)
measures the net income earned on each share of common stock
Advanced accounting courses present more refined techniques for calculating earnings per share, such as:
-divide earnings available to common stockholders by weighted-average common shares outstanding during the year
What is “earnings available to common stockholders”?
It is an earnings amount calculated as net income less dividends paid on another type of stock, called preferred stock (Net income − Preferred dividends).
Working Capital=
Current assets- Current Liabilities
