Asked by Gildardo Ramos on Jun 13, 2024
Verified
A company's ability to make interest payments and repay debt at maturity
A) Solvency
B) Leverage
C) Times interest earned
D) Horizontal analysis
E) Vertical analysis
F) Common-sized financial statements
G) Current position analysis
H) Profitability analysis
Solvency
This financial term refers to an entity's ability to meet its long-term financial obligations, indicating financial stability.
Interest Payments
Payments made to lenders as compensation for borrowing money, typically calculated as a percentage of the principal.
Debt
An amount of money borrowed by one party from another, often used to make large purchases that are not affordable with available cash.
- Comprehend the objectives behind various financial analysis methods, such as leverage and profitability.
Verified Answer
Answer: B
Leverage refers to a company's use of debt to finance its operations and investments.
Answer: C
The times interest earned ratio measures a company's ability to meet its interest payments with its earnings.
Answer: D
Horizontal analysis is a financial analysis technique that compares a company's financial performance over time.
Answer: E
Vertical analysis is a financial analysis technique that compares the components of a company's financial statements as a percentage of a key metric, such as revenue.
Answer: F
Common-sized financial statements are financial statements that present each line item as a percentage of a key metric, such as revenue.
Answer: G
Current position analysis is a financial analysis technique that assesses a company's liquidity, working capital, and overall financial health in the short term.
Answer: H
Profitability analysis is a financial analysis technique that assesses a company's ability to generate profits relative to its expenses and other costs.
Learning Objectives
- Comprehend the objectives behind various financial analysis methods, such as leverage and profitability.
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