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Chapter 14
| Term | Definition |
|---|---|
| accounts receivable analysis | The evaluation of a company’s ability to collect its accounts receivable |
| accounts receivable turnover | A measure of how frequently during the year the accounts receivable are being converted to cash, computed as sales divided by average accounts receivable |
| analytical methods | Techniques that involve the examination of changes in the amount and percentage of financial statement items within and across periods. |
| asset turnover | A profitability ratio that measures how effectively a business is using its assets to generate sales, computed as sales divided by average total assets (excluding long-term investments) |
| common sized statement | A financial statement in which all items are expressed as percentages with no dollar amounts shown |
| current position analysis | The evaluation of a company’s ability to pay its current liabilities |
| current ratio | A financial ratio that expresses the relationship between current assets and current liabilities, computed by dividing current assets by current liabilities |
| days' sales in inventory | The measure of the length of time it takes to acquire, sell, and replace inventory, computed by dividing the average inventory by the average daily cost of goods sold |
| days' sales in receivables | An estimate of the length of time the accounts receivable have been outstanding, computed as average accounts receivable divided by average daily sales |
| dividend yield | A profitability ratio that measures the rate of return to common stockholders from cash dividends, computed by dividing the dividends per share of common stock by the market price per share of common stock. |
| dividends per share | A profitability ratio that measures the extent to which earnings are being distributed to common shareholders, computed as dividends on common stock divided by shares of common stock outstanding. |
| EPS on common stock | The profitability ratio that measures the share of profits that are earned by a share of common stock, computed as net income less preferred dividends divided by the shares of common stock outstanding. |
| horizontal analysis | Financial analysis that compares an item in a current statement with the same item in prior statements in terms of the amount and percentage of change |
| inventory analysis | The evaluation of a company’s ability to manage its inventory effectively. |
| inventory turnover | A measure of the number of times inventory is turned into goods sold during the year, computed by dividing the cost of goods sold by the average inventory |
| leverage | The use of debt to increase the return on an investment. |
| liquidity | A company’s ability to convert assets into cash. |
| management's discussion and analysis | An annual report disclosure that provides management’s analysis of the results of current operations and financial condition, as well as plans for the future |
| P/E ratio | A profitability ratio that measures a company’s future earnings prospects, computed as the market price per share of common stock divided by earnings per share on common stock. |
| profitability | The ability of a firm to earn income. |
| quick assets | Cash and other current assets that can be easily converted to cash, such as temporary investments and accounts receivable. |
| quick ratio | A financial ratio that measures a company’s “instant” debt-paying ability, computed as quick assets divided by current liabilities. |
| ratio of fixed assets to long term liabilities | A solvency ratio that provides a measure of how much fixed assets a company has to support its long-term debt, calculated as net fixed assets divided by long-term liabilities |
| ratio of liabilities to stockholders' equity | a solvency ratio that measures how much of the company is financed by debt and equity =DIVIDE (total liabilities / total stockholders’ equity) |
| ratios | The expression of a financial statement item or set of items as a percentage of another financial statement item in order to measure an important economic relationship as a single number |
| return on common stockholders' equity | A profitability ratio that measures the rate of profits earned on the amount invested by common stockholders, computed as net income less preferred dividends divided by average common stockholders’ equity |
| return on stockholders' equity | A profitability ratio that measures the rate of income earned on the amount invested by the stockholders, computed as net income divided by average total stockholders’ equity |
| return on total assets | A profitability ratio that measures the profitability of total assets without considering how the assets are financed, computed as income plus interest expense divided by average total assets |
| solvency | The ability of a firm to pay its debts as they come due. |
| times interest earned | A ratio that assesses the risk that bondholders will not receive their interest payments =DIVIDE (income before income tax expense + interest expense) / interest expense. |
| vertical analysis | An analysis that compares each item in a current statement with a total or key amount within the same statement. |
| working capital | The excess of the current assets of a business over its current liabilities. |
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