All well-managed companies maintain a 2 to 1 current ratio.

In analyzing the ability of a company to pay its bills in the near future, the amount of its quick assets is generally significant.

A company can probably reduce is working capital if it increases the turnover of its merchandise inventory.

The acid-test ratio is a stricter test of liquidity than is the quick ratio.

Because financial statements are used by a variety of different persons with different goals, the ASC has concluded that financial reporting should not be constrained by clearly defined objects

When a company presents comparative financial statements, the company`s statements are presented in one column and similar data representing average amounts for the industry are presented in an adjacent column.

The current ratio and the acid-test ratio are calculated in precisely the same manner; hence, the two terms are synonyms.

General purpose financial statements typically include an income statement, a balanced sheet, a retained earnings, and a statement of cash flows.

The number of times fixed interest charges were earned is intended to measure the security of the return to creditors.

If a company has sales of P100 in 1998, P110 in 1999, and its ratio of sales to plant assets is 3 to 1 in 1998 and 3.5 to 1 in 1999, the company`s investment in plant assets is decreasing.

A ratio of sales to plant assets of 4 to 1 and a return on total assets of 12% would be highly favorable for any company.

The amounts shown on a single balance sheet or income statement are useful for evaluating trends in operating efficiency.

A common-size comparative statements, each item is expressed as a percentage of that same item`s base year amount.

The higher the current ratio a company, has the more efficiently it is using its capital.

A company with a higher turnover of merchandise inventory requires a smaller investment in inventory than one producing the same sales with a low turnover.

Estimated liquidation values or foreclosure values are a better measure of the protection provided to the secured creditors by the pledge of assets than are book values.

The operating efficiency of a company can be expressed in terms of profit margin and total asset turnover.

Comparative financial statements in which each amount is expressed as a percentage of a base amount are called percentage comparative statements.

A financial statements with the data for two or more successive accounting periods places in columns side by side, sometimes with changes shown in peso amounts and percentages is a comparative statement.

The current ratio is the relation of quick assets, such as cash, short term investments, accounts receivable, and notes receivable, to current liabilities; calculated as quick assets divided by current liabilities.

Merchandise turnover is the number of days of average credit sales volume that, if totaled, would equal to accounts receivable balance; calculated as the product of 365 times the accounts receivable balance divided by charge sales.

Price earnings ratio is a measure used to evaluate the profitability of alternative common stock investments; calculated as market price per share of common stock divided by earnings per share.

Financial leverage is a measure of profitability in the use of assets provided by common stockholders; measured by expressing net income less preferred dividends as a percentage of average common stockholders’ equity.

The number of days of average credit sales volume that, if totaled, would equal the accounts receivable balance; calculated as the product of 365 times the accounts receivable balance divided by charge sales is the merchandise turnover.

Total asset turnover is a summary measure of operating efficiency and management performance, calculated by expressing net income as a percentage of average total assets.

Statements that are published periodically for the use by a wide variety of interested parties and that include the income statement, balance sheet, statement of retained earnings or statements of changes in stockholders’ equity, and statement of cash flows are general purpose financial statements.

Profit margin is a measure profitability in the use of assets provided by common stockholders’; measured by expressing net income less preferred dividends as a percentage of average common stockholders’’ equity.

The annual amount of cash dividends paid per share of stock expressed as a percentage of the market price per share; used to compare dividend paying performance of different investment alternatives, is called the dividend pay-out.

Current assets minus current liabilities is called working capital.

Accounts receivable turnover is an indication of how long it takes a company to collect its accounts; calculated by dividing credit sales (or net sales) by the average accounts receivable balance.

Acid-test ratio is the relation of quick assets, such as cash, short-term investments, accounts receivable, and notes receivable, to current liabilities; calculated as quick assets divided by current liabilities.

A synonym for acid-test ratio is current ratio.

Return on common stockholders’ equity is a summary measure of operating efficiency and management performance; calculated by expressing net income as a percentage of average total liabilities plus stockholders’ equity.

Return on total assets employed is a component of operating efficiency and profitability; calculated by dividing net sales by average total assets.

A measure of a company’s ability to satisfy fixed interest charges; calculated as income before interest and income taxes divided by fixed interest charges, is known as interest turnover.

Net working capital is synonym of working capital.

The process of preparing and issuing financial information about a company is called financial reporting.

One transaction that will reduce a company’s current ratio is payment of a cash dividend previously declared.

In some financial statements, most of the financial items on the statements are expressed as percentages of a selected base item. These percentages for two or more sequential periods are presented on conventional financial statements.