AU 60, CHAPTER 6, ANALYZING
FINANCIAL STATEMENTS
QUESTIONS & ANSWERS (RATED
A+)
vertical analysis, trend analysis, ratio analysis - ANSWERthree common techniques
used to analyze financial statements
vertical analysis - ANSWERthe use of common-size statements to highlight basic
relationships among items within a single set of financial statements
fixed assets - ANSWERresources that cannot be expected to be sold or consumed
within the business'es normal operating cycle and that are usually considered to be
long lived
inventory turnover ratio - ANSWERan efficiency ratio that indicates how quickly
inventory is sold, generating either cash or accounts receivable
cost of goods sold / inventory - ANSWERinventory turnover ratio formula
fixed assets turnover ratio - ANSWERindicates the number of times that annual
sales are greater than the average values for net property, plant, and equipment
net profit margin, return on assets, return on equity, and the DuPoint identity -
ANSWERCommonly used GAAP-based profitability ratios are:
net profit margin - ANSWERa profitability ratio that measures the percentage of
sales remaining after deducting all expenses that indicates how effective an insurer
is at cost control, uses income statement data, and is calculated by dividing net
income after taxes by sales
trend analysis - ANSWERa comparison of financial statement data across two or
more periods
ratio analysis - ANSWERa financial analysis tool used to study the financial condition
of the account; two or more data items from accounting records of a company are
related to one another and the result is compared to results for prior accounting
periods or for similar businesses
common-size statement - ANSWERa financial statement in which amounts are
reported as a percentage of a base figure
FINANCIAL STATEMENTS
QUESTIONS & ANSWERS (RATED
A+)
vertical analysis, trend analysis, ratio analysis - ANSWERthree common techniques
used to analyze financial statements
vertical analysis - ANSWERthe use of common-size statements to highlight basic
relationships among items within a single set of financial statements
fixed assets - ANSWERresources that cannot be expected to be sold or consumed
within the business'es normal operating cycle and that are usually considered to be
long lived
inventory turnover ratio - ANSWERan efficiency ratio that indicates how quickly
inventory is sold, generating either cash or accounts receivable
cost of goods sold / inventory - ANSWERinventory turnover ratio formula
fixed assets turnover ratio - ANSWERindicates the number of times that annual
sales are greater than the average values for net property, plant, and equipment
net profit margin, return on assets, return on equity, and the DuPoint identity -
ANSWERCommonly used GAAP-based profitability ratios are:
net profit margin - ANSWERa profitability ratio that measures the percentage of
sales remaining after deducting all expenses that indicates how effective an insurer
is at cost control, uses income statement data, and is calculated by dividing net
income after taxes by sales
trend analysis - ANSWERa comparison of financial statement data across two or
more periods
ratio analysis - ANSWERa financial analysis tool used to study the financial condition
of the account; two or more data items from accounting records of a company are
related to one another and the result is compared to results for prior accounting
periods or for similar businesses
common-size statement - ANSWERa financial statement in which amounts are
reported as a percentage of a base figure
