Chapter 3 Key Terms Flashcards
key terms and definitions from Chapter 3 of the Marshall et. al textbook Accounting: What the Numbers Mean (20 cards)
acid-test ratio
The ratio of the sum of cash (including temporary cash investments) and accounts receivable to current liabilities. A primary measure of a firm’s liquidity.
asset turnover
The quotient of sales divided by average assets for the year or other fiscal period.
COD
Cash on delivery, or collect on delivery.
credit risk
The risk that an entity to which credit has been extended will not pay the amount due on the date set for payment.
current ratio
The ratio of current assets to current liabilities. A primary measure of a firm’s liquidity.
DuPont model
An expansion of the return on investment calculation to margin x turnover.
interest
The income or expense from investing or borrowing money.
interest rate
The percentage amount used, together with principal and time, to calculate interest.
liquidity
Refers to a firm’s ability to meet its current financial obligations.
margin
The percentage of net income to net sales. Sometimes margin is calculated using operating income or other intermediate subtotals of the income statement. The term also can refer to the amount of gross profit, operating income, or net income.
principal
The amount of money invested or borrowed.
rate of return
A percentage calculated by dividing the amount of return on an investment for a period of time by the average amount invested for the period. A primary measure of profitability.
return on assets (ROA)
A synonym for return on investment (ROI).
return on equity (ROE)
The percentage of net income divided by average stockholders’ equity for the fiscal period in which the net income was earned; frequently referred to as ROE. A primary measure of a firm’s profitability.
return on investment (ROI)
The rate of return on an investment; frequently referred to as ROI. Sometimes referred to as return on assets or ROA. A primary measure of a firm’s profitability.
risk
A concept that describes the range of possible outcomes from an action. The greater the range of possible outcomes, the greater the risk.
semilogarithmic graph
A graph format in which the vertical axis is a logarithmic scale.
trend analysis
Evaluation of the trend of data over time.
turnover
The quotient of sales divided by the average assets for the year or some other fiscal period. A descriptor, such as total asset, inventory, or plant and equipment, usually precedes the turnover term. A measure of the efficiency with which assets are used to generate sales.
working capital
The difference between current assets and current liabilities. A measure of a firm’s liquidity.
