Chapter 13: Measuring and Evaluating Financial Performance

financial statement

A(n) ________ user should be able to understand relationships, activities, and results from business operations when viewing a statement.

debt and stockholders’ equity

Financing for assets come from ________.

Horizontal (trend) analyses

_________ help financial statement users recognize important financial changes that unfold over time.

horizontal, vertical, and ratio

The three different types of analyses:

trends

They compare individual financial statement line items to ______.

Vertical analyses

________ show relationships between items on a financial statement. They compare the balance of one account to another.

Ratio analyses

________ are used to understand relationships between items on one or more financial statements. It shows a company’s performance from using their resources.

analysis

A(n) _________ is considered “complete” once it is successfully able to create a better understanding for those who review financial statement and its results.

time-series analyses

Horizontal analyses is also called __________ because of the comparison of results over time.

dollars or percentages

Horizontal analyses results are presented as year to year _________.

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Equation for calculating change (%)

Vertical (common size) analysis

__________ focuses on relationships regarding financial statements.

percentages

Vertical (common size) analysis relies on __________ to translate results and relationships.

common size balance sheet

A(n) _________ shows the percent of total assets and each liability or stockholders’ equity as a percent of their total.

common size income statement

A(n) _________ gives the percentage of sales for items on the income statement.

common size

Ratio analyses is similar to _________ in the manner of how they both consider size in comparisons.

profitability, liquidity, solvency

The three categories of ratios:

Profitability

_________ ratios focus on a company’s net income within a current period.

Liquidity

_______ ratios indicate how well a company can use or sell current assets to pay the liabilities they have.

Solvency

________ ratios assure that a company can repay lenders and interest payments.

Net profit margins

_________ help when evaluating a company and shows the percentage of revenue a company generates.

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Equation to calculate Net Profit Margin:

gross profit percentage

A(n) __________ shows the overall profit made on sales.

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Equation to calculate gross profit percentage:

fixed asset turnover

The _______ ratio tells us the revenue earned for the amount of money a company puts into fixed assets.

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Equation to calculate fixed asset turnover:

return on equity

The ________ ratio compares earned income for stockholders to the average amount of equity. It is reported as a percentage.

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Equation to calculate return on equity:

Earnings per share

________ gives the amount of earnings from outstanding shares.

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Equation to calculate earnings per share:

price/earning

The ________ ratio correlates the stock price to the stock’s earnings per share.

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Equation to calculate price/earnings ratio:

receivables turnover

The ________ ratio indicates how well a company can collect on its’ receivables.

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Equation to calculate receivables turnover:

inventory turnover

The _________ ratio is the frequency of inventory being bought during the process of buying and selling items.

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Equation to calculate inventory turnover:

current

The ________ ratio compares current assets to current liabilities to see if those assets can pay the liabilities.

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Equation to calculate current ratio:

debt-to-assets

The ________ ratio is able to show how much of a company is funded by debt and financed by creditors.

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Equation to calculate debt-to-asset ratio:

times interest earned

The ________ ratio indicates if a company’s current income can cover its debts.

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Equation to calculate times interest earned:

how and why a company makes the decisions they do

Ratios can give us insight into ________.

Choice of method

_________ for certain aspects of business are different from business to business.

full disclosure principle

The _________ demands that all appropriate information regarding a business’s operations must be included on their financial statements.

going-concern assumption

The ________ lays out accounting rules.

continuity

The going-concern assumption is also called _________.

significant changes

________ are the focus of horizontal computations.

horizontal (trend) computations

Horizontal (trend) analyses is also called _________.

dollar amount and percentage

Examine and compare the ________ to ensure your final results and conclusion.