Ratio Analysis and Financial Performance

This set of flashcards covers vocabulary related to ratio analysis, including liquidity, activity, debt, and profitability ratios as described in the lecture notes.

Ratio Analysis

The process of calculating and interpreting financial metrics to evaluate performance.

Liquidity

The ability of a firm to satisfy its short-term obligations.

Current Ratio

A liquidity measure calculated by dividing current assets by current liabilities ($\text{Current Assets} \div \text{Current Liabilities}$).

Quick (Acid-test) Ratio

A liquidity measure calculated by subtracting inventory from current assets and dividing by current liabilities ($(\text{Current Assets} - \text{Inventory}) \div \text{Current Liabilities}$).

Inventory Turnover

A measure of activity, liquidity, and inventory management efficiency.

Average Age of Inventory

The number of days an item remains in inventory.

Average Collection Period

The time it takes to collect accounts receivable.

Average Payment Period

The time it takes to pay accounts payable.

Total Asset Turnover

A measure that indicates efficiency by showing how assets are used to generate sales.

Debt Ratio

A measure of the proportion of debt in a firm's capital structure.

Debt to Equity Ratio

Indicates the relative proportion of debt and equity used by a firm.

Times Interest Earned Ratio

A measure of the firm's ability to make contractual interest payments.

Fixed-Payment Coverage Ratio

A measure of the firm's ability to meet all fixed payment obligations.

Gross Profit Margin

The percentage of sales remaining after the firm has paid for its goods.

Operating Profit Margin

A measure of pure profits before interest and taxes.

Net Profit Margin

The percentage of sales remaining after all expenses and deductions have been made.

Earnings per share

The amount of profit earned for each outstanding share of stock.

Return on Total Assets

A measure of overall effectiveness in generating profits from available assets.

Return on Equity

A measure of the return earned on the owners' investment.

Price/Earnings (P/E) Ratio

The amount investors are willing to pay for a firm's earnings.

Market/Book (M/B) Ratio

Provides an assessment of the firm's value relative to its book value.

Variance Analysis

A benchmark against which to evaluate the actual cost.