Chapter 6 Flashcards
Asset Turnover
sales divided by assets and is interpreted as the number of dollars in sales generated by each dollar of assets
Assets-to-equity
assets divided by equity and is interpreted as the number of dollars of assets acquired for each dollar invested by stockholders
Average Collection Period
Shows the average number of days that elapse between sale and cash collection
Cash Flow Adequacy Ratio
cash from operations divided by expenditure for fixed asset additions and acquisitions of new businesses
Cash Times Interest Earned Ratio
a financial analysis tool that indicates the interest payment ability of an entity
Common-size Financial Statements
all amounts for a given year being shown as a percentage of that denominator for the year
Current Ratio
a comparison of current assets (cash, receivable, and inventory) with current liabilities. It is computed by dividing total current assets by total current liabilities
Debt Ratio
a frequently used measure of leverage, computed as total liabilities divided by total assets
Debt-to-equity Ratio
total liabilities divided by total equity and is interpreted as the number of dollars of borrowing for each dollar equity investment
DuPont Framework
a systemic approach to identifying general factors causing ROE to deviate from normal
Financial Statement Analysis
areas in which additional data must be gathered, including details of significant transaction, market share information, competitors plans and customer demand forecasts
Fixed Asset Turnover
sales divided by average fixed assets and is interpreted as the number of dollars in sales generated by each dollar of fixed assets
Leverage
borrowing that allows a company to purchase more assets than its stockholders are able to pay through their own investment
Liquidity
a company’s ability to pay its debt in the short run
Margin
the profitability of each dollar in sales
Number of Day’s Sales in Inventories `
calculated by dividing average inventory by average daily cost of goods sold and is interpreted as the average number of days of sales that can be made using only the supply of inventory on hand
Price-earnings Ratio
an equity valuation multiple. it is defined as market price per share divided by annual earnings per share
Return on Assets
net income divided by total assets and is the number of pennies of net income generated by each dollar of assets
Return on Equity
the overall measure of the performance of a company
Return on Sales
net income divided by sales and is interpreted as the number of pennies in profit generated from each dollar of sales
Turnover
the degree to which assets are used to generate sales
