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Topic 22 - Analysis

TermDefinition
Horizontal Analysis Analysis carried out by making a comparison of financial results across the page, usually by reporting on several consecutive trading periods.
Interpretation The process of explaining the meaning of a financial item or analytical ratio.
Liquidity The ability of a business to meet its short-term debts as they fall due.
Net Profit Ratio Net profit/sales; used to determine the percentage of the sales dollar that remains after all expenses have been taken into account.
Profitability A comparison of profit with a base figure, such as assets employed, capital invested or sales made.
Quick Asset Ratio (or Acid Test Ratio) Current assets less stock and prepayments/current liabilities less overdraft; used to measure immediate liquidity.
Ratio A comparison of two items that are somehow related in order to analyse an aspect of business performance.
Return on Assets Net profit/average assets; used to measure how well management has used its investment in assets to earn profit.
Return on Owner's Investment Net profit/average owner's equity; used to measure the return earned on the investment of funds by the proprietor of a business.
Trend Analysis Measuring the change in a financial item or a ratio over several reporting periods.
Vertical Analysis The breaking down of an accounting report into percentages in a vertical fashion down the page.
Working Capital Current assets - current liabilities; used to measure the liquidity of a business, expressed in dollars.
Working Capital Ratio Current assets/current liabilities; used to measure the liquidity of a business. Can be expressed as a ratio or percentage.
Created by: Giant Kahuna