65 terms

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

sales

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