Chapter 3 Glossary of Key Terms
accounts receivable turnover ratio
- measures how many times in a period (usually a year) a company will collect cash from accounts receivable
- book value per share
- total book value (assets – liabilities) of a firm expressed on a per-share basis
- cash ratio
- represents the firm’s cash and cash equivalents divided by current liabilities; often used by investors and lender to asses an organization’s liquidity
- current ratio
- current assets divided by current liabilities; used to determine a company’s liquidity (ability to meet short-term obligations)
- days’ sales in inventory
- the number of days it takes a company to turn inventory into sales
- debt-to-assets ratio
- measures the portion of debt used by a company relative to the amount of assets
- debt-to-equity ratio
- measures the portion of debt used by a company relative to the amount of stockholders’ equity
- DuPont method
- framework for financial analysis that breaks return on equity down into smaller elements
- earnings per share (EPS)
- measures the portion of a corporation’s profit allocated to each outstanding share of common stock
- efficiency ratios
- ratios that show how well a company uses and manages its assets
- inventory turnover
- measures the number of times an average quantity of inventory was bought and sold during the period
- liquidity
- ability to convert assets into cash in order to meet primarily short-term cash needs or emergencies
- market value ratios
- measures used to assess a firm’s overall market price
- operating cycle
- amount of time it takes a company to use its cash to provide a product or service and collect payment from the customer
- price/earnings (P/E) ratio
- company’s stock price divided by the company’s earnings per share; indicates the amount investors are willing to pay for one dollar of earnings
- profit margin
- represents how much of sales revenue has translated into income
- quick ratio
- also known as the acid test ratio; ratio used to determine a firm’s ability to pay short-term debts using its most liquid assets
- return on equity
- measures the company’s ability to use its invested capital to generate income
- return on total assets
- measures the company’s ability to use its assets successfully to generate a profit
- solvency
- implies that a company can meet its long-term obligations and will likely stay in business in the future
- times interest earned (TIE) ratio
- measures the company’s ability to pay interest expense on long-term debt incurred
- total asset turnover
- measures the ability of a company to use its assets to generate revenues
Attribution:
This chapter is from “Principles of Finance” https://openstax.org/books/principles-finance/pages/1-why-it-matters by Dahlquist and Knight. This book is licensed under the CC-BY 4.0 license. 2022 OpenStax.
https://openstax.org/books/principles-finance/pages/1-key-terms
Access for free at https://openstax.org/books/principles-finance/pages/6-key-terms
