CMA US Part 2_ Book

What is liquidity?

Ability to pay current obligations.

What defines solvency?

Ability to meet long-term obligations.

What is leverage?

Use of debt in capital structure.

How does the current ratio indicate liquidity?

Compares liquid assets to current liabilities.

What does a low current ratio suggest?

Possible solvency issues.

What is the quick ratio?

Measures ability to pay short-term debts without inventory.

How does the cash ratio differ from the quick ratio?

Excludes receivables and inventories.

What is net working capital?

Current assets minus current liabilities.

What does a high debt-to-equity ratio indicate?

Higher financial risk due to more debt.

What is a common-size financial statement?

Restates items as percentages for comparability.

What is vertical analysis?

Analyzes financial statements based on a single period.

What is horizontal analysis?

Compares financial data across multiple periods.

What does the cash flow ratio measure?

Cash flow's ability to cover current liabilities.

What is the implication of a high current ratio?

Management may not be using assets effectively.

What is the significance of capital structure?

Affects risk profile and borrowing costs.

How does debt financing benefit a firm?

Interest is tax-deductible.