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