| A | B |
|---|
| Accounts receivable turnover | The number of times per year that the business collects the average balance of Accounts Receivable; net credit sales divided by average net accounts receivable |
| Adequate disclosure concept | States that financial statements contain the information necessary to understand a business’s financial condition |
| Base year | The year used for comparison |
| Comparability | Refers to financial information that can be compared from one accounting period to another or from one business to another |
| Current ratio | Current assets divided by current liabilities; determines if a company can pay its bills and repay its loans |
| Consistent reporting concept | States that the same accounting procedures must be followed in the same way in each accounting period. Some business decisions require a comparison of current financial statements with previous financial statements. |
| Debt ratio | Found by dividing total liabilities by total assets; shows the percentage of assets that are financed with borrowed capital |
| Earnings per share of common stock | Measures the amount of profit that can be assigned to each share of common stock; used by stockholders and potential investors to judge a company’s performance and compare its performance to those of other businesses |
| Equity per share | Refers to the amount that would be paid on each share of stock if the corporation was liquidated and the assets were sold for book value; is the total stockholders’ equity divided by the number of shares of common stock outstanding. |
| Equity ratio | Stockholders’ equity divided by total assets; shows the percentage of assets that are provided by stockholders’ equity |
| Horizontal trend analysis | The comparison of the same items on a company’s financial statements for two or more periods; comparison can be of dollar amounts or percentages |
| Liquidity | Measures the ability of a business to pay its current debts and provide cash for unexpected needs |
| Merchandise inventory turnover | The number of times a company’s inventory is sold during a year; cost of merchandise sold divided by the average merchandise inventory |
| Price-earnings ratio | Used to evaluate the reasonableness of the market price of a corporation’s stock; market price per share divided by the earnings per share |
| Profitability | Refers to the ability to earn a profit |
| Quick (acid-test) ratio | Short-term liquid assets (quick assets)divided by current liabilities; measures the company’s ability to pay all current liabilities almost immediately if necessary (short-term liquidity) |
| Quick assets | Assets that can be converted into cash quickly; (cash, net receivables, short-term investments) |
| Rate earned on average total assets | Net income after federal income tax divided by average total assets; shows how well a business is using its assets to earn net income |
| Rate earned on net sales | Should be consistent from year to year if costs are controlled well; found by dividing net income after federal income tax by net sales |
| Ratio | Comparison between two numbers showing how many times one number exceeds the other |
| Ratio analysis | The comparison of two amounts on a financial statement and the evaluation of the relationship between these amounts; used to evaluate a company’s liquidity, profitability, and financial strength |
| Ratio of property, plant, and equipment to liabilities | The book value of property, plant, and equipment assets divided by total long-term liabilities; indicates company’s ability to borrow more money on a long-term basis in the future |
| Ratio of stockholders’ equity to liabilities | Total stockholders’ equity divided by total liabilities; used by creditors and managers to evaluate financial strength |
| Return on common stockholders’ equity | Measures how well a business has used the resources provided by the stockholders; net income divided by average stockholder’s equity |
| Vertical trend analysis | For the income statement expresses each dollar amount as a percentage of net sales; for the balance sheet, as a percentage of total assets, liabilities or stockholder’s equity; also referred to as component percentages |
| Working capital | The amount of current assets available after current liabilities are paid; current assets minus current liabilities |
