06 Financial Statement Ratios and Performance Metrics Flashcards
What do profitability ratios measure?
Aspects of a firm’s operating (income/loss) results on a relative basis
List the price to earnings ratio formula.
Market price for a common share / Earnings per share (EPS)
List the owner’s equity ratio formula.
Shareholders’ equity / Total assets
List the debt ratio formula.
Total liabilities / Total assets
List the debt to equity ratio formula.
Total liabilities / Total shareholders’ equity
List the accounts receivable turnover ratio formula.
Net credit sales / Average net accounts receivable
List the current ratio formula.
Current assets / Current liabilities
What do liquidity (or solvency) ratios measure?
They measure the ability of the firm to pay its debts as they come due.
List the formula for the acid test or quick ratio.
(Cash + Net receivables + Marketable securities) / Current liabilities
List the formula for determining operating cycle length.
Days’ sales in accounts receivable + Days’ supply in inventory
What is the operating cycle?
The period of time from the purchase of inventory, to payment of the payable on inventory purchase, to the sale of goods, to the collection of receivable, and then to purchasing inventory all over again
List the formula for number of days’ supply in inventory.
365 / Inventory turnover
What is the formula for inventory turnover?
Cost of goods sold (COGS) / Average inventory
What is the profit margin formula?
Net income / Net sales
List the formula for number of days’ sales in accounts receivable (AR).
365 / AR turnover
