Ratio definitions (Learning Objectives 2 & 3) 10–15 min.

Match the following terms to their definitions:

1. Tells whether a company can pay all its current liabilities if they become due immediately.

2. Measures a company’s success in using assets to earn income.

3. The practice of comparing a company with other companies that are similar.

4. Indicates how rapidly inventory is sold.

5. Shows the proportion of a company’s assets that is financed with debt.

6. Tells the percentage of a stock’s market value that the company returns to stockholders annually as dividends.

7. Measures a business’s ability to pay interest on its debt.

8. Measures a company’s ability to collect cash from credit customers.

a. Inventory turnover

b. Interest coverage ratio

c. Quick ratio

d. Dividend yield

e. Return on assets

f. Accounts receivable turnover g. Benchmarking h. Debt ratio.

AppendixLO1