Match each definition that follows with the term (a-h) it defines.
-measures the risk that interest payments will not be made if earnings decrease
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

Question

Quizplus · Accepted Answer

The measure that describes the risk that interest payments will not be made if earnings decrease is the times interest earned ratio.

Answer: B
 Leverage refers to the use of debt financing to increase returns or magnify the risk of losses.

Answer: C
 The times interest earned ratio measures a company's ability to make interest payments on its debt.

Answer: D
 Horizontal analysis refers to the comparison of financial statement line items over multiple periods.

Answer: E
 Vertical analysis refers to the analysis of line items on a financial statement as a percentage of a base figure.

Answer: F
 Common-sized financial statements express each line item as a percentage of a base figure, typically either total assets, total revenues or net income.

Answer: G
 Current position analysis refers to an examination of a company's liquidity, or ability to meet its short-term obligations.

Answer: H
 Profitability analysis refers to an assessment of a company's ability to generate earnings or profit over a given period.

Match Each Definition That Follows with the Term (A-H) It