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Accounting
Comps Review
| Term | Definition |
|---|---|
| Current Ratio | measures the ability to pay current liabilities with current assets. _Current Assets_ Current Liabilities |
| Acid-Test Ratio | measures the ability to pay all current liabilities if they come due immediately. _Cash + Short-term Investments + Net Current Receivables_ Current Liabilities |
| Inventory Turnover | the number of average inventory times a company sells its average inventory level during a year. _Costs of goods sold_ Average inventory |
| Accounts Receivable Turnover | Sales should be higher than 12: measures the ability to collect to cash from credit customers _Net Credit Sales_ Average net accounts receivable |
| Debt Ratio | indicates the percentage of assets financed by debt. (Less is better) _Total Liabilities_ Total Assets |
| Times-Interest Earned | Measures the number of times operating income can cover interest expenses. (Highest is better) _Income from Operations_ Interest expense |
| Rate of Return on Net Sales | indicates the percentage of each sales dollar earned as net income. _Net Income_ Net sales Higher number shows more profit. The lower number indicates that they can improve |
| Rate of Return on Total Assets | measures how profitably a company uses its assets. (Higher is better) _Net Income + Interest Expense_ Average total assets |
| Rate of Return on Common Stockholder’s Equity | Gauges how much income is earned with the money invested by common shareholders. __Net Income - Preferred Dividends__ Average Common Stockholder’s Equity Compare the two within the same industry and the highest one is better. |
| Earnings Per Share of Common Stock | Gives the amount of net income per one share of company’s outstanding common stock. ___Net Income – Preferred Dividends___ Number of Shares of Common Stock Outstanding |
| Price Earnings Ratio | indicates the market prices of $1 of earnings. Market Price per Share of Common Stock Earnings per Share Look at the Balance Sheet for Market Price. Highest is better |
| Dividend Yield | percentage of a stock’s market value returned as dividends to stockholder’s each period. Dividend per Share of Common (or Preferred) Stock Marker Price per Share of Common Stock |
| Book Value Per Share | indicates the recorded accounting amount for each share of common stock outstanding. Total Stockholder’s Equity – Preferred Equity Number of shares common stock outstanding |
| Creditworthiness | Short-term; Liquidity and Activity – whoever has the highest of these 4 is considered to have good short-term creditworthiness. Long-term; Solvency and Profitability (TIE vs Debt Ratio) If 50/50 both companies can incur debt. |
| Creditworthiness | If companies are facing solvency issues and low profitability, they can increase profitability. They can by down debt to better their solvency. |
| Common Sizing (Vertical Analysis) | A vertical analysis of the income statement assumes that revenue is going to equal 100% all others are considers a percentage of revenue. |
| Common Sizing (Vertical Analysis) | A vertical analysis of the balance sheets assumes that total assets is going to equal 100% and all others are considers a percentages of total assets. |
| Common Sizing (Vertical Analysis) | Common sizing is considered complimentary to better understand a ratio analysis. Ratio analysis can lead to inconsistencies which common sizing companies on a percentage basis can fulfill. It allows us to compare different size companies. |
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