Terms Introduced in the Chapter

A tool of financial statement analysis that expresses the relationship between two accounting figures as a ratio, giving a deeper view of a firm's profitability, liq …

Ratios that measure a firm's ability to meet its short-term obligations as they fall due. The two used in this chapter are the Current Ratio and …

Ratios that assess a firm's ability to meet its long-term obligations, such as the Debt-Equity, Total Assets to Debt, Proprietary and I …

Ratios that measure how efficiently a firm uses its resources, for example the inventory, trade receivables and trade payables turnover ratios. They are …

Ratios that measure the profit-earning capacity of a business in relation to sales or to investment, such as the gross profit, net profit, operating and …

A profitability ratio that relates profit before interest and tax to the capital employed, showing how well the funds invested in the business have been used. It is also cal …

Current assets that can be converted into cash quickly — current assets excluding inventories and prepaid expenses. They form the numerator of …

The owners' funds in the business, comprising share capital plus reserves and surplus. They serve as the base in ratios such as the proprietary rat …

A profitability ratio, also called Return on Shareholders' Funds, that relates profit after tax to shareholders' funds, showing the return earned …

The average number of days a firm takes to collect cash from its trade receivables. It is derived from the trade receiv …

Amounts due to a firm from its customers for goods sold or services rendered on credit (debtors plus bills receivable). They are the basis of the trade …

Another name for activity ratios; they express how many times, on average, an item such as inventory, receivables, payables or capital is turned over or …

Ratios that indicate how efficiently a firm's resources are used to generate revenue — essentially the activity/turnover ratios viewed as a measur …

The proportion of a company's earnings (earnings per share) that is distributed to shareholders as dividend, measured by the …