Ch 13: Analysis of Financial Statements Key Terms

Vocabulary flashcards covering key financial terms, financial statement analysis techniques, and performance measures.

Business segment

Part of a company that can be separately identified by the products or services that it provides or by the geographic markets that it serves; also called segment.

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.

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.

Efficiency

Company’s productivity in using its assets; usually measured relative to how much revenue a certain level of assets generates.

Equity ratio

Portion of total assets provided by equity, computed as total equity divided by total assets.

Financial reporting

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

Financial statement analysis

Application of analytical tools to financial statements and related data for making business decisions.

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.

Horizontal analysis

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

Liquidity

Availability of resources to meet short-term cash requirements.

Market prospects

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

Profitability

Company’s ability to generate an adequate return on invested capital.

Ratio analysis

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

Solvency

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

Vertical analysis

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

Working capital

Current assets minus current liabilities at a point in time.