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Commercial UW AU60

Commercial Underwriting Principles Assgnt 6 of 8

TermDefinition
Vertical analysis The use of common-size statements to highlight basic relationships among items within a single set of financial statements.
Trend analysis A comparison of financial statement data across two or more periods.
Ratio analysis A financial analysis tool used to study the financial condition of an account; 2 or more data items from accounting records of a company are related to one another & the result is compared to results for prior accounting periods or for similar businesses.
Common-size statement A financial statement in which amounts are reported as a percentage of a base figure.
Comparative financial statements A financial analysis tool that provides figures for the current and the prior year side by side to enable the report user to observe variations that might indicate financial deterioration or growth.
Accounts receivable turnover ratio An efficiency ratio that indicates how quickly a business collects the amounts owed by its customers.
Days sales outstanding A measure of the number of days it takes, on average, for a company to collect its accounts receivable.
Fixed assets Resources that cannot be expected to be sold or consumed within the business's normal operating cycle and that are usually considered to be long lived.
Inventory turnover ratio An efficiency ratio that indicates how quickly inventory is sold, generating either cash (from cash sales) or accounts receivable (from credit sales).
Net profit margin A profitability ratio that measures the percentage of sales remaining after deducting all expenses that indicates how effective an insurer is at cost control; uses income statement data and is calculated by dividing net income after taxes by sales.
Return on assets (ROA) A profitability ratio that shows how well a company has used its resources by comparing net income to the assets invested to generate that income.
DuPont identity An analysis of ROA and ROE by breaking them down into their component ratios.
Leverage The practice of using borrowed money to invest.
Leverage ratio A financial ratio that indicates the relationship between the amount of funds supplied by creditors and the funds supplied by the owners of the company.
Working capital A liquidity measure that is calculated by subtracting current liabilities from current assets. It is used to determine a company's ability to finance immediate operations (to buy inventory, finance growth, and obtain credit).
Current ratio A liquidity ratio that indicates the company's ability to meet its short-term financial obligations; calculated by dividing current assets by current liabilities.
Acid-test ratio (quick ratio) A liquidity ratio that provides a measure of a company's ability to meet its current obligations if it cannot sell its inventory.
Debt-to-equity ratio A leverage ratio that measures the extent to which a company is financed using borrowings rather than its own funds (owners' equity).
Debt-to-assets ratio A leverage ratio that shows the extent to which a company's assets are financed by debt; uses balance sheet data and is calculated by dividing total liabilities by total assets.
Asset turnover A ratio that emphasizes the efficiency of the company's use of its assets.
Quick ratio (acid test ratio) A liquidity ratio that provides a measure of a company's ability to meet its current obligations if it cannot sell its inventory.
Net profit margin The percentage of sales remaining after deducting all expenses.
Created by: lorrainel007
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