Investment Analysis Chapter 19
statement of cash flows
a financial statement showing a firm's cash receipts and cash payments during a specified period
income statement
a financial statement showing a firm's revenues and expenses during a specific period
return on assets (ROA)
a profitability ratio; earnings before interest and taxes divided by total assets
current ratio
a ratio representing the ability of the firm to pay off its current liabilities by liquidating current assets (current assets/current liabilities)
international financial reporting standards
accounting standards used in many non-U.S. markets that rely more on principles and less on rules than U.S. standards
return on equity (ROE)
an accounting ratio of net profits divided by equity
balance sheet
an accounting statement of a firm's financial position at a specified time
inventory turnover ratio
cost of goods sold as a multiple of average inventory
DuPont system
decomposition of a firm's profitability measures into the underlying factors that determine such profitability
accounting earnings
earnings of a firm as reported on its income statement
FIFO
first-in first-out accounting method of valuing inventories
LIFO
last-in first-out accounting method of valuing inventories
liquidity
liquidity refers to the speed and ease with which an asset can be converted to cash
interest coverage ratio
measure of financial leverage; earnings before interest and taxes as a multiple of interest expense
cash ratio
measure of liquidity of a firm; ratio of cash and marketable securities to current liabilities
quick ratio/acid test ratio
measure of liquidity similar to the current ratio except for exclusion of inventories
leverage ratio
ratio of debt to total capitalization of a firm
market-book-value ratio
ratio of price per share to book value per share
times interest earned
ratio of profits to interest expense
total asset turnover
the annual sales generated by each dollar of assets (sales/assets)
price-earnings (P/E) ratio
the ratio of a stock's price to its earnings per share
average collection period
the ratio of accounts receivables to sales, or the total amount of credit extended per dollar of daily sales (average AR/sales x 365)
return on sales/profit margin
the ratio of operating profits per dollar of sales (EBIT divided by sales)
economic earnings
the real flow of cash that a firm could pay out forever in the absence of any change in the firm's productive capacity
quality of earnings
the realism and conservatism of the earnings number and the extent to which we might expect the reported level of earnings to be sustained
fair value accounting (market-to-market accounting)
use of current values rather than historic cost in the firm's financial statements
economic value added (AKA residual income)
The spread between ROA and cost of capital multiplied by the capital invested in the firm. It measures the dollar value of the firm's return in excess of its opportunity cost.
