2.8-Ratios

Question 1

Debt to Equity

Answer 1

total liab/total equity, measures solvency and risk

Question 2

Times interest earned

Answer 2

EBIT/Interest exp, measures LT risk, ability to pay interest

Question 3

Inventory turnover

Answer 3

COGS/ Avg inventory,ability to gen cash

Question 4

Days in Inventory

Answer 4

End Inventory/(COGS/365)

Question 5

AR Turnover

Answer 5

Sales(net)/Avg AR(net)

Question 6

Days sales in AR

Answer 6

Ending AR(net)/(sales(net)/365)

Question 7

AP Turnover

Answer 7

COGS/Avg AP, better to stretch it out and take advantage of int free grace period

Question 8

Days payables outstanding

Answer 8

Ending AP/(COGS/365), number of days it takes to pay

Question 9

Net profit margin

Answer 9

Net inc/Sales(net), performance, the higher the better

Question 10

Asset turnover

Answer 10

Sales(net)/avg total assets , mgmt efficiency, ability to turn assets into sales

Question 11

Return on assets

Answer 11

net inc/avg total assets, performance, the higher the better

Question 12

Return on equity

Answer 12

Net inc/ Avg total equity, return to stockholders