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Manager accounting

C202 chapt 3

analysis of financial statement numbers can be used to diagnose existing problems and forecast how a company will perform in the future
financial statement is used to predict a company's future profitability and cash flows from its past performance, to evaluate the performance of a company with an eye toward identifying problem areas
debt ratio percentage of company funding that is borrowed
current ratio indication of a company's ability to pay its short term debts
return on sales pennies in profit on each dollar of sales
asset turnover measure of efficiency; number of sales dollars generated by each dollar of assets
return on equity pennies in profit for each dollar invested by stockholders
price earnings ratio number of dollars an investor must pay to 'buy' the future rights to each dollar of current earnings
common size financial statements allow comparison of financial statements across years an between companies
common size financial statements are prepared by dividing all financial statement numbers by sales for the year
profitability means return on sales is computed as net income divided by sales and is interrupted as the number of pennies in profit generated from each dollars of sales
efficiency means asset turnover is computed as sales divide by assets and is interpreted as the number of dollars in sales generated by each dollar of assets
leverage means assets to equity ratio is computed as assets divided by equity and is interpreted as the number of dollars of assets a company is able to acquire using each dollar invested by stockholders
the best tool for detecting a company's profitability problem is the common size income statement
financial statements don't contain relevant information
Created by: nashanta