BMAL-590 Week 2 Accounting/Financial
Statement Analysis Section 1 Questions
and Answers
horizontal analysis: - ANSWER-Analysis of percentage increases and decreases in
financial statements items across time.
vertical analysis: - ANSWER-Percentage analysis may also be used to show the
relationship of each component to the total within a single statement.
In vertical analysis, the balance sheet is analyzed by stating each asset item as a
percent of total assets.
Useful for comparing company to company.
solvency: - ANSWER-entity's ability to repay debts
Analyses used in assessing solvency include the following: - ANSWER-1. Current
position or liquidity analysis including working capital, current ratio, and the acid-test
ratio or quick ratio
2. Accounts receivable analysis including accounts receivable turnover and number of
days' sales in receivables
3. Inventory analysis including inventory turnover and number of days' sales in inventory
4. Ratio of fixed assets to long-term liabilities
5. Ratio of liabilities to stockholders' equity
6. Number of times interest charges are earned
current position analysis or liquidity analysis: - ANSWER-Using metrics to assess a
business's ability to pay its current liabilities.
An analysis of a firm's current position normally includes: - ANSWER-working capital,
the current ratio, and the quick ratio
working capital: - ANSWER-The excess of the current assets of a business over its
current liabilities; generally expressed as a dollar amount, not ratio.
Current ratio (also called working capital ratio/bankers' ratio: - ANSWER-another way to
express the relationship between current assets and current liability and assess
liquidity.
dividing current assets by total current liabilities.
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