Match each definition that follows with the term (a-h) it defines.
-use debt to increase the return on an investment
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 definition matches the term "leverage," which refers to the use of debt (or borrowed funds) to increase the potential return on an investment.

A. Solvency refers to a company's ability to pay its debts and meet its financial obligations. 
C. Times interest earned is a measure of a company's ability to meet its interest payments, calculated by dividing earnings before interest and taxes (EBIT) by interest expenses. 
D. Horizontal analysis compares financial data over time to identify trends or changes in a company's performance. 
E. Vertical analysis involves analyzing financial statements by expressing numbers as percentages of a common base, such as total assets or net sales. 
F. Common-sized financial statements are financial statements that have been adjusted to express each item as a percentage of a common base, making them easier to compare. 
G. Current position analysis involves assessing a company's current assets and liabilities to evaluate its ability to meet short-term financial obligations. 
H. Profitability analysis involves assessing a company's profitability by analyzing its income statement and related financial metrics.

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