Chapter 4 Flashcards
(13 cards)
financial statement analysis
the use of financial statements to analyze a company’s performance and assess its strengths and weaknesses
trend analysis
analysis of trends in financial data over time
benchmark
a standard against which performance is measured
common-size financial statement
a financial statement in which each number is expressed as a percentage of a base number, such as total assets or net revenues (net sales)
financial ratio
A number from a financial statement that has been scaled by dividing by another financial number
return on equity (ROE):
ROE
Net income /Stockholders’ equity
short-term liquidity ratios or short-term solvency ratios
focus on whether the firm has the ability to convert current assets into cash quickly without loss of value.
insolvency
the inability to pay debts when they are due
Current ratio=
=Current assets/ Current liabilities
Quick Ratio
The quick ratio is similar to the current ratio except that inventory is subtracted from current assets in the numerator
quick ratio—or acid-test ratio=
we divide current assets, less inventory, by current liabilities
Quick ratio
Current assets /Inventory
Current liabilities
efficiency ratios or asset turnover ratios
which measure how efficiently a firm uses it assets
