Chapter 15 notes
Ratio analysis
1. Liquidity ratios P706 to P710
a. Short term in nature
b. They measure the company’s ability of paying its short-term debt
c. How fast it can collect cash from credit customers and convert inventory to cash
2. Profitability ratios P710 to P714
a. Regarding company earnings
b. How efficient the company is utilizing its assets
c. Is the company returning sufficient profit from its capital
d. Are the shareholders getting sufficient dividends per period
3. Solvency ratios P714 to P715
a. Long term in nature
b. The company’s ability to refinance its long-term debt
c. Ability to pay bond interests in the long run
4. A summary of ratios is given on P716
Discontinued Operations
1. Report at the income statement after net income
2. Refers to the disposal of a significant component of a business
3. Report as net of income tax
Extraordinary items
1. Report at the income statement after discontinued operations
2. Events and transactions which are unusual in nature and infrequent in occurrence
3. Report as net of income tax