Benchmarking:
The process of measuring a firm against the most successful firms in the industry.
Common-size statements:
A statement that shows the items appearing on it in percentage form as well as in dollar form. On the income statement, the percentages are based on total sales revenue; on the balance sheet, the percentages are based on total assets.
Financial leverage:
Acquiring assets with funds that have been obtained from creditors or from preferred shareholders at a fixed rate of return.
Horizontal analysis:
A side-by-side comparison of two or more years' financial statements.
Negative financial leverage:
A situation in which the fixed return to a company's creditors and preferred shareholders is greater than the return on total assets. In this situation, the return on common shareholders' equity will be less than the return on total assets.
Positive financial leverage:
A situation in which the fixed return to a company's creditors and preferred shareholders is less than the return on total assets. In this situation, the return on common shareholders' equity will be greater than the return on total assets.
Productivity ratios:
Ratios that measure output in relation to some measure of input, such as direct labour charges.
Trend analysis:
See Horizontal analysis: A side-by-side comparison of two or more years' financial statements.
Trend percentages:
The expression of several years' financial data in percentage form in terms of a base year.
Vertical analysis:
The presentation of a company's financial statements in common-size form.
