D076 Unit 4 Financial Ratios

A set of vocabulary flashcards covering essential terms and concepts related to ratio analysis as discussed in the lecture.

Ratio Analysis

The process of evaluating relationships between financial statement items to assess a firm's performance.

Liquidity Ratios

Ratios that measure a firm's ability to meet its short-term obligations.

Current Ratio

A liquidity ratio that measures the relationship between current assets and current liabilities.

Quick Ratio

A liquidity ratio that measures a firm's ability to meet short-term obligations without selling inventory.

Trend Analysis

Analyzing a firm's performance over time using the same financial ratios.

Progress Measurement

Evaluating performance against a set goal over time.

Cross Sectional Analysis

Comparing a firm's financial ratios with those of other companies in the same industry.

Benchmarking

A specific type of cross-sectional analysis where a firm compares itself to the best-performing firms in its industry.

Activity Ratios

Ratios that measure how efficiently a firm uses its assets to generate sales.

Debt Ratio

A leverage ratio that measures the proportion of a firm's assets financed by debt.

Debt to Equity Ratio

A leverage ratio that indicates the relative proportion of shareholders' equity and debt used to finance a company’s assets.

Times Interest Earned

A measure of a firm's ability to meet its interest obligations from its operating income.

Return on Assets (ROA)

A profitability ratio that measures how efficiently a firm uses its assets to generate net income.

Return on Equity (ROE)

A profitability ratio that measures the amount of net income returned as a percentage of shareholders' equity.

Market to Book Ratio

A valuation ratio comparing the market value of a company's shares to its book value.

Price to Earnings Ratio (P/E)

A ratio that compares a company's current share price to its earnings per share, indicating how much investors are willing to pay per dollar of earnings.

DuPont Framework

A model that analyzes return on equity by detailing its components: profitability, asset turnover, and leverage.