027 Ratio Profitability & Equity

Question 1

What do profitability ratios measure?

Answer 1

Aspects of a firm’s operating (income/loss) results on a relative basis.

Question 2

List the return on owner’s equity formula.

Answer 2

Net Income / Average Stockholders’ Equity.

Question 3

List the return on common stockholders’ equity formula.

Answer 3

(Net Income-Current Period Preferred Dividend Obligation) / Average Common Stockholders’ Equity.

Question 4

List the return on total assets formula.

Answer 4

(Net Income + Interest Expense (net of tax)) / Average Total Assets.

Question 5

List the profit margin formula.

Answer 5

Net Income/Net Sales.

Question 6

List the common stock yield formula.

Answer 6

Dividend per Common Share / Market Price per Common Share.

Question 7

List the per share common stock dividend pay out rate formula.

Answer 7

Cash Dividends per Common Share / Earnings Per Share (EPS).

Question 8

List the total common stock dividend payout rate formula.

Answer 8

Cash Dividends to Common Shareholders / Net Income to Common Shareholders.

Question 9

List the price to earnings ratio formula.

Answer 9

Market Price for a Common Share / Earnings Per Share (EPS).

Question 10

List the book value per preferred share ratio formula.

Answer 10

Preferred Shareholders’ Equity (including dividends in arrears) / Number of Outstanding Preferred Stocks.

Question 11

List the book value per common stock ratio formula.

Answer 11

Common Shareholders’ Equity / Number of Outstanding Common Shares.

Question 12

List the debt ratio formula.

Answer 12

Total Liabilities / Total Assets.

Question 13

List the owner’s equity ratio formula.

Answer 13

Shareholders’ Equity / Total Assets.

Question 14

List the debt to equity ratio formula.

Answer 14

Total Liabilities / Total Shareholders’ Equity.

Question 15

What do equity/investment leverage ratios measure?

Answer 15

Measure relative sources of equity and equity value.