26. Financial Statement Analysis

Question 1

How do you calculate accounts receivable turnover in days?

Answer 1

1. First, calculate accounts receivable turnover (total net credit sales ÷ average receivables)
2. 365 days ÷ accounts receivable turnover

Question 2

How do you calculate the quick/acid-test ratio?

Answer 2

Quick assets ÷ total current liabilities

Quick assets are current assets that are cash or quickly converted into cash, e.g. accounts receivable, short-term investments, etc.

Prepaid expenses and inventory are NOT quick assets.

Question 3

How do you calculate working capital?

Answer 3

Current assets minus current liabilities

Question 4

How do you calculate the current ratio?

Answer 4

Current assets ÷ current liabilities

Question 5

How do you calculate inventory turnover ratio?

Answer 5

1. Calculate inventory turnover (COGS ÷ Average inventory)
2. 365 days ÷ inventory turnover

Question 6

How do you calculate book value per common share?

Answer 6

(Total stockholders’ equity - preferred stockholders’ equity) ÷ common shares outstanding

Question 7

How do you calculate dividend payout?

Answer 7

Dividends per common share ÷ earnings per share

Question 8

How do you calculate return on total assets?

Answer 8

(Net income + interest expense) ÷ average total assets