EXHIBIT 14-26 Summary of Analytical Measures Ratios or Other Measurements Method of Computation Significance Measures of short-term liquidi Current ratio ab Current Liabilities Quick ratio A measure of short-term debt Current Liabilities A measure of short-term debt tes the cash generated by operations Indicates ability to cover currently maturing Indicates how quickly receivables are collected Indicates in d ons Average Inventory to sell the a 365 Days Days to Sell I Free cash flow Net Cash from Debt ratic ion A1 /4/2/34/46/6/4/2/6/26/2/2@0:0 Measures of long-term credit risk Debt ratio Percentage of assets financed by creditors Total Assets Trend in net cash provided by operating Appears in comparative statements of cash Indicator of a company's ability to generate the ability to meet its Annual Interest Expense interest payment obligations Measures of profitability changes; that is, in net sales and The rate at which a key measure is increasing Dollar Amount of Change or decreasing: the growth rate Gross profit rate A measure of the profitability of the company's products A measure of management's ability to control Operating expense ratio Opereting Expenses page 656 The profitability of a company's basic business expenses Operating income Net income as a percentane of net sales Earnings per share Return on assets Return on equity Gross Profit-Operating Expenses activities An indicator of management's ability to control Net income applicable to each share of A measure of the productivity of assets regardless of how the assets are financed The rate of return earned on the stockholders equity in the business The rate of return earned on the common Average Common Stockholders Equity Measures for evaluating the current market price of common stoc Quoted in financial press or and /cfi/6/46/4/2/34/46/6/4/2/6/50/2/200:55.5 The rate of return earned on the common Net Income- Preferred Diidends Average Common Stockholdors Equity Return on common stockholders' equity ate company has both common and preferred stock Measures for evaluating the current market price of common stock Quoted in financial press or disclosed in Reflects both investors' expectations and Market value of financial instruments Price-earnings ratio Dividend yield Book value per share A measure of investors' expectations about the company's future prospects Dividends expressed as a rate of return on the market price of the stock The recorded value of net assets undertying each share of common stock ETHICS, FRAUD,& CORPORATE GOVERNANCE The tools discussed in this chapter involve using financial statement information to help make investment and credit decisions. Given th high-profile accounting frauds of the early 2000s and the resulting focus on corporate governance, a help investors and creditors govermance. Many investors and creditors believe that better-governed firms are better managed, and that these firms will either offer superior performance (returms) over time and/or will offer new type of tool was developed to make investment decisions. This new tool involves ratings of the quality of a company's corporate returns comparable to less well governed firms but with less risk. provide ratings of corporate govenance quality for public companies. Two of the most prominent of t and The Corporate Library (TCL) (Portland, Maine). organizations are ISS Governance Services, a unit of Risk Metrics Group, ISS Governance Services describes itself as "a leader in proxy voting and corporate governance matters." ISS provides coverage of a large number of shareholder meetings across many markets, serving institutional and corporate elients. These clients hire ISS to analyze corporate proxy statements and to make recommendations on the manner in which these institutional and corporate clients s matters subject to shareholder ratification ISS rates the quality of a company's corporate governance by computing a Corporate Govenance Quotient (CGO). ISS computes Internet Case 14.5-Evaluating Liquidity and Profitability MUST POST FIRST) Initial Post-As an employee, write an internal memo to your manager addressing the following Use the Internet search engine of your choice and do a general search on the name of a company of interest to you. Explore the web site of the company you choose and locate that company's most recent financial statements. You may need to look under a category that provides general information about the company and/ or investor information. . Find and read the description of the company, including the type of business it is in. Why is gaining an understanding of the industry and type of business an important starting point for financial statement analysis? Locate the company's primary financial statements. Find the summary table of ratios in this chapter in Exhibit 14-26. Calculate three of the listed ratios under each of the following categories: "Measures of short-term liquidity" and "Measures of profitability." Show your work in calculating these ratios. Write a brief statement describing what you have learned about your company's liquidity and profitability. . Why do you think the Internet has become such a widely used source of financial information by investors and creditors? For your response post, you will be taking on the role of the manager and respond to your employee's memo. Inform the employee as to what specific managerial decisions, conclusions, and/or judgments can you make from the information provided in that memo. Do not respond to a memo that has already received a managerial response. Your initial post is due on Thursday and your response is due by 11:59 pm CT on Sunday. Ruhrics