Match each definition that follows with the term (a-h) it defines.
-an analysis of a company's ability to pay its current liabilities
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

Current position analysis focuses on a company's ability to meet its current liabilities, such as through calculating the current ratio.

Answer: C
 Times interest earned is a ratio that measures a company's ability to cover its interest payments with its earnings before interest and taxes.

Answer: A
 Solvency measures a company's ability to pay off its long-term debts.

Answer: D
 Horizontal analysis involves comparing financial statement data from multiple periods to identify trends and changes.

Answer: E
 Vertical analysis involves expressing financial statement line items as a percentage of a common base, such as total assets or sales.

Answer: F
 Common-sized financial statements involve expressing each financial statement line item as a percentage of a common base, such as total sales or total assets.

Answer: H
 Profitability analysis involves evaluating how profitable a company is through measures such as return on assets or return on equity.

Answer: B
 Leverage refers to how much debt a company has relative to its equity, and how that debt impacts the company's risk and return.

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