Accounting Chapter 12

A company's ability to pay its long-term debt is referred to as:

Solvency

To analyze changes in a company's net income over the last 10 years, you should perform a ______.

horizontal analysis

Common types of analysis that help assess a specific company's performance include comparisons:

over time to the same industry between companies

The sum of cash, current investments, and accounts receivable divided by current liabilities equals the

acid test ratio

Which term best describes a company having a suitable amount of cash or easily-convertible assets to pay incurred current liabilities?

liquidity

Liquidity

refers to a company having enough cash or convertible assets to pay its current liabilities.

A common-size balance sheet presents each line item as a percentage of

total assets

The debt to equity ratio is calculated as

total liabilities divided by total stockholders' equity.

Common-size analysis is another term used for a ____ analysis

vertical

Which of the following items are included in the numerator for the current ratio but are excluded from the numerator of the quick or acid-test ratio?

Prepaid expenses Inventory

If Currants & Jams, Inc.'s current ratio equals 2.0, current liabilities are $10,000, and long-term liabilities are $30,000, then its current assets equal:

20000

Which of the following is the formula for the current ratio?

Current assets divided by current liabilities.

______ analysis identifies the relative contribution made by each financial statement line item.

Vertical

______ analysis is a technique that expresses each financial statement amount as a percentage of another amount on the same financial statement.

Vertical

Vertical analysis is also commonly known as

common size analysis

Mathematically, the current ratio is expressed as current assets divided by

current liabilities

To analyze changes in a company's sales over the last 5 years, you should perform a ______.

horizontal analysis

Horizontal analysis ______.

is used to identify trends over time

Mark wants to determine whether a specific company has become more profitable over time. Mark should compare the company's performance to:

its prior years' performance

Current assets divided by current liabilities equals ______.

the current ratio