Ch 13 Measuring and Analyzing Financial Strength

Match the accounting terms to their definition.

• price to earnings ratio

• The relationship between net income and average stockholders’ equity

• Quick Ratio

• The relationship between the market value per share and earnings per share of a stock

• rate earned on avg stockholders’ equity

• Cash and other current assets that can be converted quickly into cash.

• quick assets

• A difference between net income and taxable income for more than one period that reverses out over the entire period

• temporary difference

• A ratio that measures the relationship of quick assets to current liabilities.

The Securities and Exchange Commission requires public companies to submit quarterly and annual reports.

• True

• False

To be useful, financial statements must be prepared by using the same accounting principles in each period.

• True

• False

On a balance sheet, accounts receivable are listed at gross value.

• True

• False

Answer explanation

These are listed at net realizable value because if you will remember from Accounting I, you are inevitably not going to collect all of your Accounts Receivable.

A business can only get capital from owners’ investments and retained earnings.

• True

• False

Plant assets are also known as working capital.

• True

• False

The current ratio can be too high, indicating more capital invested in current assets than is needed to run the business.

• True

• False

Quick assets include cash, inventory, and accounts receivable.

• True

• False

The debt ratio is a profitability ratio.

• True

• False

The debt and equity ratios show the mix of capital provided by capital borrowed and capital provided by stockholders.

• True

• False