Chapter 14
book value per share of common stock
Common stockholders' equity divided by the number of shares of common stock outstanding. The recorded amount for each share of common stock outstanding.
trading on equity
Earning more income on borrowed money than the related interest expense, thereby increasing the earnings for the owners of the business, also called leverage
Return on Equity
net income minus preferred dividends, divided by average common stockholders' equity. It is a measure of profitability; also called rate of return on common stockholders' equity
rate of return on total assets
net income plus interest expense divided by average total assets. this ratio measures a company's success in using its assets to earn income for the persons who finance the business. Also called return on assets
Return on Assets
net income plus interest expense, divided by average total assets. this ratio measures a company's success in using its assets to earn income for the people who finance the business; also called rate of return on total assets
inventory turnover
ratio of cost of goods sold to average inventor. it indicates how rapidly inventory is sold
return on sales
ratio of net income to net sales. it is a measure of profitability; also called rate of return on net sales
price/earning (P/E) ratio
ratio of the market price of a hare of common stock to the company's earnings per share. It measures the value that the stock market places on $1 of a company's earnings
horizontal analysis
the comparison of financial statement line items between accounting periods. Changes are shown in gross dollar amounts and as percentages
gross profit percentage
the fraction of each dollar of sales revenue that is gross profit, or markup over the cost of the merchandise
operating income percentage
the percentage of each sales dollar that becomes income from the company's primary business operations before considering interest and income taxes
Earnings per Share
Amount of a company's net income for each share of it outstanding common stock
Accounts Receivable Turnover
Measures a company's ability to collect cash from credit customers. To compute accounts receivable turnover, divide net credit sales by average net accounts receivable.
Rate of Return on Common Stockholders' Equity
Net income minus preferred dividends, divided by average common stockholders' equity. A measure of profitability. Also called return on equity.
Days' Sales in Receivables
Ratio of average net accounts receivable to one day's sales. It indicates how many days' sales remain in Accounts Receivable awaiting collection
Divided Yield
Ratio of dividends per share share of stock to the stock's market value that the company returns to stockholders annually as dividends
interest-coverage ratio
Ratio of income from operations to interest expense. It measures the number of times that operating income can cover interest expense; also called the times interest earned ratio.
times-interest-earned ratio
Ratio of income from operations to interest expense. Measures the number of times that operating income can cover interest expense. Also called the interest-coverage ratio.
Rate of Return on Net Sales
Ratio of net income to net sales. It is a measure of profitability; also called return on sales
Quick Ratio
Ratio of the sum of cash plus short-term investments plus net current receivables to total current liabilities. It tells whether the entity can pay all its current liabilities of they come due immediately; also called the acid-test ratio
Acid-Test Ratio
Ratio of the sum of cash plus short-term investments plus net current receivables to total current liabilities. Tells whether the entity can pay all its current liabilities if they come due immediately. Also called the quick ratio.
Debt Ratio
Ratio of total liabilities to total assets. It shows the proportion of a company's assets that is financed with debt
Benchmarking
The practice of comparing a company with other companies or industry averages
common-size statement
a financial statement that reports only percentages (no dollar amounts)
trend percentages
a form of horizontal analysis over a longer span of time in which percentages are computed by selected by selecting a base year as 100% and expressing amounts for the following years as a percentage of the base amount
vertical analysis
analysis that shows the relative size of each financial statement line item as a percentage of a base figure. The base figure is usually total sales (for the income statement) or total assets (for the balance sheet)
current ratio
current assets divided by current liabilities. it measures the ability to pay current liabilities with current assets
working capital
current assets minus current liabilities: measures a business's ability to meet its short-term obligation with its current assets
leverage
earning more income on borrowed money than the related interest expense, thereby increasing the earnings for the owners of the business; also called trading on equity
ratio analysis
evaluating the relationship between various amounts in the financial statements