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65 terms

bus fin 420 chapter 3

common-sized statement
a statement which presents all items in percentage terms is called a
financial ratios
relationships ddetermind from a firms financial information and used for comparison purposes are known as
utilization ratios
short term solvency ratios are also reffered to as
the current ratio is defined as current assets
divided by current liabilities
the acid-test ratio is also called the
quick ratio
the cash ratio is defined by
current liabilities
leverage ratios
ratios which analyze a firms ability to meet its long term obligations are called
equity multiplier
the ratio which includes all debts of all maturities to all creditors is called the
times interest earned ratio
the financial ratio which is defined as earnings before interest and taxes divided byinterest paid is called the
the cash coverage ratio is defined
as earnings before intrest and taxes plus depreciation divided by interest paid
asset utilisation ratios are defined as those ratios which measure how efficiently a firm uses its
assets to generate sales
the inventory turnover ratio is defined as
costs of goods sold divided by inventory
the number of days it takes a firm to sell its inventory is called the
days sales inventory
the number of times a firm collects their outstanding credit accounts and reloans the money in one year is called the
receivables turnover
365 days divided by the receivables turnover
the days sales in receivables is defined as
sales divided by total assets is referred to as the
total assset turnover
the group of fratios which are focused on net income are referred to as
liquidity ratios
the ratio related to the amount of profit a firm earns for every $1 in sales is called the
profit margin
the financial ratio measured as net income divided by total assets is known as a firms
return on assets
the amount of profit a firm earns for every $1 of equity is referref to as the
return on equity
the ratios which involve the current price of one share of a firms common stock are referred to as
market value measures
the relationship between a firms earnings and the multiple of those earnings which investors are willing to pay to purchase one share of stock is called the
price-earnings ratio
market to book ratio
the relationship between current selling price of a chare of stock and the related accounting value f that share is called the
then the return on equity is decomposed into three parts, it is referred to as the
du pont identity
dividend payout ratio
the percentage of a cirms net income that is distirbuted to shareholders is called the
retention ratio
the percentage of a firms net income which is transferred into retained earnings is known as the
the internal growth rate is best described as the _______ growth rate achievable
maximum, w/o external financing of any king
the sustainable growth rate is described as the ______ growth rate achievable
maximum. w/o using any exxternal equity financing while maintaing a constant debt-eequity ratio
when a financial analyst compares the current ratio and the profit margin of a firm over a serioes of years, the analyst is condicting a type of analysis known as
time-trend analysis
firms w similiar assets operations, and markets
a peer group analysis is best defined as a comparison of
Standard Industrial Classification SIC system
the us government coding system that classifies firms by their specific tpype of business operation
long term debt account to decrease
Baker and SOns is issuing more shares of common stock and purchasing equipment with the procedes of the sotckc offering. on the common size balance sheet of the firm, the transaction will cause the percentage value for the
which of the following is correct concerning the percentages found on a common size income statement
the cost of goods sold percentage should remain relatively constant over time unless the wholesale or retail proce of a fims inventory changes
which will increase the liquidity of a firm
selling inventory on credit
balance sheet accounts are listed in order of
decreasing liquidity
which one of the following actions will INCREASE THE CURRENT RATIO, all else constant
the payment of inventory using short term credit
a current ratio less than 1.0 means that a firm presently has
more debts due within the next eyar than assets that should convert to cash within that same time period
A firm has positive net working capital and carries inventory. all else constant, the quick ratio of this firm will
always be less than the current ratio, but greater than the cash ratio
the cash ratio tells you, in terms of years, how long a firm can
pay its bills w/o receiving any more cash
which of the following are classified as financial leverage measures??
cash coverage ratio and return on equity II and III
all else constant, a firm will lower its total debt ratio when it
retains all of its net profits w/o obtaining any external financing
a firm has a times interest earned ratio of 2, this means that the firm has twice as much
earnings before interst and taxes as it does interest expense
the equity multiplier is equal to
1 plus the debt-equity ratio
when a firm increases its inventory turnover rate, it has to be
selling its inventory in less days, regardless of the level of total sales for the year
a firm has a days sales in inventory of 18, this means that the firm
has sufficient inventory to support sales for 18 days
if a manager notices that the firms receivables turnover rate is declining, he or she should assume that
on average it is taking each customers longer to pay for their purchases
which will calculate the DAYS SALES IN RECEIVABLES
(365 x accounts rec) / sales
the profit margin is the amount of net profit earned for every $1 of
which will increase the profit margin of a firm
decreasing the tax rate
which are correct formulas for computing the RETURN ON ASSETS
NI / total assets and profit margin mult by the total asset turnover
if the total assets of a firm increase while all other components of ROE remain unchanged, you would expect the firms
total asset turnover to decrease
the earnings per share represent the maount of __________ per year per share of outstanding stock
net income
which is true concerning the PRICE-EARNINGS RATIO
price earnings ratios are SENSITIVE to the accounting meethods employed by the firm
a high price earnings ratio should best be interpreted to mean that a firm
currently provides less net income per dllar paid for one share of stock than most other firms
a firm has a market-to-book ratio of 4
FOUR times greater than the BOOK VALUE per share
the Du Pont identity is comprised of which of the three following
equity multiplier, profit margin, and total asset turnover
which is a correct method of computing the Du Pont identity?
(profit margin)(1/capital intensity ratio)(equity multiplier)
the Du Pont identity helps financial managers determine
all of the above
which will increase teh internal growth rate of a firm, all else constant
a decrease in teh amount of assets required to produce the same amount of net income
if a firm has 100 percent dividend payout ratio, then the internal growth rate of the firm is
zero percent
to achieve the maximum sustainable rate of growth, a firm must
maintain a constant debt-equity ratio
the sustainable rate of growth exceeds the internal rate of growth because the
sustainable rate increases debt as teh firm increases its retained earnings, while the internal rate does not
the ability of a firm to sustain growth depends on which of the following factors?
all of the above
which concerning financial statement analysis is correct
the purchase of inventoryusing short term credit will decrease the current ratio
which represents problems encountered when analyzing financial statements?
1,2,3 many firms are conglomerates, firms may use diff accounting methods, seasonal firms may have diff fiscal years