Chapter 15 Financial Statement Analysis

These flashcards cover key terminology and concepts related to financial statement analysis, including techniques, ratios, and key components of annual reports.

Liquidity

A company's ability to convert assets into cash.

Solvency

A company's ability to make periodic interest payments and repay the face amount of debt at maturity.

Profitability

A company's ability to generate earnings.

Horizontal Analysis

The analysis of increases and decreases in the amount and percentage of comparative financial statement items.

Vertical Analysis

The percentage analysis of the relationship of each component in a financial statement to a total within the statement.

Common-Sized Statements

Financial statements in which all items are expressed as percentages, with no dollar amounts shown.

Current Ratio

A ratio that measures a company's ability to pay current liabilities; calculated as current assets divided by current liabilities.

Quick Ratio

A measure of a company's immediate ability to pay its current liabilities, calculated using liquid assets.

Accounts Receivable Turnover

A ratio that measures how many times a company collects its average accounts receivable during a period.

Earnings per Share (EPS)

A measure of a company's profitability, calculated by dividing net income available to common shareholders by the number of outstanding shares.

Price-Earnings (P/E) Ratio

A valuation ratio calculated by dividing the market price per share by the earnings per share.

Dividends per Share

The amount of cash distributed to shareholders, calculated as total dividends divided by the number of outstanding shares.

Return on Assets (ROA)

A profitability ratio that indicates how well a company uses its assets to generate earnings.

Return on Equity (ROE)

A measure of profitability that calculates how many dollars of profit a company generates with each dollar of shareholders' equity.

Management’s Discussion and Analysis (MD&A)

A section of the annual report where management discusses the company's financial results and future expectations.

Sarbanes-Oxley Act of 2002

A regulatory law that established new standards for public company boards, management, and public accounting firms.