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Acid-test ratio p. 575
Cash, current investments, and accounts receivable divided by current liabilities; measures the availability of liquid current assets to pay current liabilities.
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Aggressive accounting practices . p. 591
Practices that result in reporting higher income, higher assets, and lower liabilities
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Asset turnover p. 580
Net sales divided by average total assets, which measures the sales per dollar of assets invested.
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Average collection period p. 572
Approximate number of days the average accounts receivable balance is outstanding. It equals 365 divided by the receivables turnover ratio.
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Average days in inventory p. 573
Approximate number of days the average inventory is held. It equals 365 days divided by the inventory turnover ratio.
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Conservative accounting practices . p. 591
Practices that result in reporting lower income, lower assets, and higher liabilities
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Current ratio p. 574
Current assets divided by current liabilities; measures the availability of current assets to pay current liabilities.
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Debt to equity ratio . p. 575
Total liabilities divided by stockholders' equity; measures a company's solvency risk
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Discontinued operation p. 583
The sale or disposal of a significant component of a company's operations.
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Extraordinary item p. 584
An event that is (1) unusual in nature and (2) infrequent in occurrence.
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Gross profit ratio . p. 578
Gross profit divided by net sales; measures the amount by which the sale price of inventory exceeds its cost per dollar of sales
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Growth stocks p. 581
Stocks that have high expectations of future earnings growth and therefore usually trade at higher PE ratios.
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Horizontal analysis p. 567
Analyzes trends in financial statement data for a single company over time.
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Inventory turnover ratio p. 573
Cost of goods sold divided by average inventory; the number of times the firm sells its average inventory balance during a reporting period.
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Liquidity p. 571
Refers to a company's ability to pay its current liabilities.
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Price-earnings (PE) ratio . p. 581
Price-earnings (PE) ratio Compares a company's share price with its earnings per share. p. 581
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Profit margin. p. 580
Net income divided by net sales; indicates the earnings per dollar of sales
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Profitability ratios . p. 578
Measure the earnings or operating effectiveness of a company
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Quality of earnings p. 587
Refers to the ability of reported earnings to reflect the company's true earnings, as well as the usefulness of reported earnings to predictfuture earnings.
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Receivables turnover ratio . p. 572
Net credit sales divided by average accounts receivable; the number of times during a year that the average accounts receivable balance is collected (“turns over”)
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Return on assets p. 579
Net income divided by average total assets; measures the amount of net income generated for each dollar invested in assets.
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Return on equity p. 580
Net income divided by average stockholders' equity; measures the income generated per dollar of equity.
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Solvency p. 571
Refers to a company's ability to pay its long-term liabilities.
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Times interest earned ratio p. 575
Ratio that compares interest expense with income available to pay those charges.
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Value stocks p. 581
Stocks that have lower share prices in relationship to their fundamental ratios and therefore trade at lower (bargain) PE ratios.
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Vertical analysis . p. 564
Expresses each item in a financial statement as a percentage of the same base amount
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