Chapter 14 - Financial Statement Analysis
Quick Ratio
A financial ratio that measures the ability to pay current liabilities with quick assets (cash, temporary investments, accounts receivable), computed as quick assets divided by current liabilities.
Common-Sized Statement
A financial statement in which all items are expressed only in relative terms.
Return on Stockholders' Equity
A measure of profitability computed by dividing net income by total stockholders' equity.
Return on Common Stockholders' Equity
A measure of profitability computed by dividing net income, reduced by preferred dividend requirements, by common stockholders' equity.
Return on Total Assets
A measure of the profitability of assets without regard to the equity of creditors and stockholders in the assets.
Ratio
A percentage or proportion of one number to another that is used in analyzing financial statements to assess a company's financial condition or performance.
Times Interest Earned
A ratio that measures the risk that interest payments will not be made if earnings decrease, calculated as income before income tax and interest expense divided by interest expense.
Dividend Yield
A ratio, computed by dividing the annual dividends paid per share of common stock by the market price per share at a specific date, that indicates the rate of return to stockholders in terms of cash dividend distributions.
Management's Discussion and Analysis (MD&A)
A section required in annual reports filed with the Securities and Exchange Commission where management summarizes the company's financial performance and condition.
Ratio of Fixed Assets to Long-Term Liabilities
A solvency ratio that measures how much fixed assets a company has to support its long-term debt.
Comprehensive Income
All changes in stockholders' equity during a period, except those resulting from dividends and stockholders' investments.
Vertical Analysis
An analysis that compares each item in a current statement with a total amount within the same statement.
Quick Assets
Cash and other current assets that can be quickly converted to cash, such as marketable securities and receivables.
Unrealized Gain or Loss
Changes in the fair value of equity or debt securities for a period.
Dividends per Share
Measures the extent to which earnings are being distributed to common stockholders.
Accumulated Other Comprehensive Income
The cumulative effects of other comprehensive income items reported separately in the Stockholders' Equity section of the balance sheet.
Working Capital
The excess of the current assets of a business over its current liabilities.
Fair Value
The price that would be received for selling an asset or paying off a liability, often the market price for an equity or debt security.
Earnings per Share on Common Stock (EPS)
The profitability ratio of net income available to common stockholders to the number of common shares outstanding.
Price-Earnings (P/E) Ratio
The ratio of the market price per share of common stock, at a specific date, to the annual earnings per share.
Accounts Receivable Turnover
The relationship between sales and accounts receivable, computed by dividing sales by average accounts receivable; measures how frequently during the year the accounts receivable are being converted to cash.
Number of Days' Sales in Receivables
The relationship between sales and accounts receivable, computed by dividing the average accounts receivable by the average daily sales.
Solvency
The ability of a company to make its periodic interest payments and repay the face amount at maturity.
Profitability
The ability of a firm to generate earnings.
Liquidity
The ability to convert assets into cash.
Analytical Methods
The amount and percentage of financial statement items within and across periods.
Accounts Receivable Analysis
A company's ability to collect its accounts receivable.
Inventory Analysis
A company's ability to manage its inventory effectively.
Current Position Analysis
A company's ability to pay its current liabilities.
Ratio of Liabilities to Stockholders' Equity
A comprehensive leverage ratio that measures the relationship of the claims of creditors to stockholders' equity, calculated as total liabilities divided by total stockholders' equity.
Current Ratio
A financial ratio that is computed by dividing current assets by current liabilities.
Horizontal Analysis
Financial analysis that compares an item in a current statement with the same item in prior statements.
Asset Turnover Ratio
Ratio that measures how effectively a business uses its assets to generate revenues, computed as sales divided by average total assets.
Other Comprehensive Income
Specified items that are reported separately from net income, including foreign currency items, pension liability adjustments, and unrealized gains and losses on investments.
Inventory Turnover
The relationship between the volume of goods sold and inventory, computed by dividing the cost of goods sold by the average inventory.
Number of Days' Sales in Inventory
The relationship between the volume of sales and inventory, computed by dividing the average inventory by the average daily cost of goods sold.
Leverage
Using debt to increase the return on an investment.
