Principles of Accounting II - Chapter 13

Liquidity

Availability of resources to meet short-term cash requirements.

Solvency

Company’s long-run financial viability and its ability to cover long-term obligations.

Market prospects

Expectations (both good and bad) about a company’s future performance as assessed by users and other interested parties.

General-purpose financial statements

Statements published periodically for use by a variety of interested parties; include the income statement, balance sheet, statement of owner’s equity (or statement of retained earnings for a corporation), statement of cash flows, and notes to these statements.

Financial reporting

Process of communicating information relevant for making investment, credit, and business decisions.

Management’s Discussion and Analysis (MD&A)

a narrative report in a company's financial statement, offering insights into the strategies and future outlook of the business that contextualizes beyond raw numbers.

Horizontal analysis

Comparison of a company’s financial condition and performance across time.

Vertical analysis

Evaluation of each financial statement item or group of items in terms of a specific base amount.

Ratio analysis

Determination of key relations between financial statement items as reflected in numerical measures.

Comparative financial statement

Statement with data for two or more successive periods placed in side-by-side columns, often with changes shown in dollar amounts and percents.

Dollar change

Analysis period amount - Base period amount

Percent change

(Analysis period amount - Base period amount) / Base period amount x 100

Trend percent

(Analysis period amount / Base period amount) x 100

Common-size financial statement

Statement that expresses each amount as a percent of a base amount. In the balance sheet, total assets is usually the base and is expressed as 100%. In the income statement, net sales is usually the base.

Common-size percent

(Analysis amount / Base amount) x 100

Working Capital

Current assets minus current liabilities at a point in time.

Current ratio

Current assets / Current liabilities

Acid-test ratio

(Cash + Short-term investments + Current receivables) / Current liabilities