Cash Debt Coverage Ratio Notes
The cash debt coverage for Microsoft and Oracle for 1998 are
given below. The debt to total assets ratio (an accrual-based
solvency ratio) is also shown for comparison purposes.
Comprehensive Net Income Notes
Although most revenues, expenses, gains, and losses
recognized during the period are included in net income,
specific exceptions to this practice have developed.
Certain items, such as unrealized gains and losses on
Discontinued Operations Notes
Discontinued operations refer to the disposal of a
significant segment of a business, such as the elimination of
a major class of customers or an entire activity.
When the disposal of a significant segment occurs, the
Classification of Extraordinary and Ordinary Items Notes
Effects of major casualties (acts of God), if rare in the area.
Expropriation (takeover of property by a foreign government.
Effects of a newly enacted law or regulation, such as
Current Cash Debt Coverage Ratio Notes
The acid-test ratio or quick ratio is a measure of a company's
immediate short-term liquidity.
Acid-Test or Quick Ratio
Cash + Securities
Horizontal Trend Analysis Notes
Horizontal analysis (also known as trend analysis) is a
technique for evaluating a series of financial statement data
over a period of time.
The purpose of horizontal analysis is to determine whether
an increase or decrease
Key points of Liquidity Notes
Liquidity is the ability of a business to meet its immediate
You may be familiar with one measure of liquidity called the
current ratio. (It will also be covered in Chapter 12.)
Current ratio equals current asset
Vertical Analysis Total Net Assets Notes
Vertical analysis is a technique for evaluating financial
statement data that expresses each item in a financial
statement as a percent of a base amount.
Total assets is always the base amount in vertical analysis
Using Cash Flows to Evaluate A Company Notes
Microsoft Corporations 1998 statement of cash flows provides
information for the computations of these measures:
Free Cash Flow
In the statement of cash flows, cash from operations is
intended to indicate the c
Inventory Turnover Ratio Notes
The inventory turnover ratio measures the number of
times on average the inventory is sold during the period. Its
purpose is to measure the liquidity of the inventory.
Unless seasonal factors are significant, average invento
Ratio Analysis Notes
As a tool of analysis, ratios can provide clues about
underlying conditions that may not be apparent from an
inspection of the individual components of a particular ratio.
A single ratio by itself is not very meaningful. Accordingly,