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Finance for Non-Financial Professionals - Coursera > 3 - Ratios > Flashcards

3 - Ratios Flashcards

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1
Q

What is used to determine a company’s ability to pay off short term debt obligations?

A

Liquidity ratios

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2
Q

The higher the liquidity ratio the…

A

Higher the margin of safety that the company possessed to cover short term debts.

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3
Q

The lower the liquidity ratio the…

A

less likely they will be able to pay off debts in an emergency.

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4
Q

What is the working capital ratio?

A

Working Capital Ratio = current assets/ current liabilities

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5
Q

What does a working capital ratio of below 1 mean?

A

Indicates negative working capital

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6
Q

What does a working capital ratio over 2 mean?

A

Means the company is not investing excess assets

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7
Q

What is a good WC ratio?

A

Between 1.2 and 2.0 is sufficient

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8
Q

Quick ratio (acid test) =

A

Quick ratio = (current assets - inventories)/ current liabilities

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9
Q

What is the difference between the WC ratio and the Quick ratio?

A

The Quick ratio takes out the inventory you have because it may not be as easy to sell it and turn it into cash.

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10
Q

The higher the quick ratio…

A

the better the company’s liquidity position is.

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11
Q

Asset turnover ratio

A

A class of financial metrics and is used to measure the turnover of assets such as inventory and AR.

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12
Q

What is Inventory Turnover Ratio used for?

A

A ratio showing how many times a company’s inventory is sold and replaced over a period of time.

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13
Q

Asset Turnover ratio =

A

Inventory Turnover ratio = Sales/Inventory or CGS/Average Inventory

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14
Q

AR Collection Period

A

Approx. amount of time it takes for a business to received payments owed.

Given in terms of receivables, from its customers and clients.

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15
Q

What is the AR Collection period equation?

A

ARCP = Average AR/Average Daily Sales

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16
Q

ROA

A

Return on Assets = Net Profit/Total Assets

17
Q

Profitability ratios

A

Used to asses a businesses ability to generate earnings as compared to it’s expenses. Having the same ration compared to previous period is a good sign. Must have background knowledge.

18
Q

ROE

A

Return on Equity = Net income/shareholders equity

19
Q

ROI

A

Used to calculate a gain from an investment. ROI = gain from investment - cost of investment / cost of investment

20
Q

ROCE =

A

Return on capital employed

21
Q

ROCE

A

ROCE = EBIT / capital employed (assets - liability)

22
Q

Debt ratios

A

Always cheaper to borrow the money then to get someone to invest.

You can have too little debt and too much debt. Maybe you have too much money just sitting around and you should be using it to invest.

23
Q

debt ratio

A

Debt ratio = total debt/total assets.

24
Q

debt equity ratio

A

debt equity ratio = total liabilities/ total shareholders equity

25
Q

You should have 2 - ? debt ratio

A

2 to 1

26
Q

Dupont period has how many parts to it?

A

3 parts

27
Q

Dupont Profit margin

A

Profit margin = profit/sales

How efficiently is a company producing it’s profits.

28
Q

Total Asset Turnover

A

Total Asset Turnover = Sales or revenues/Assets

Shows how efficiently a business is utilizing it’s assets

29
Q

The equity multiplier

A

The equity multiplier = assets/equity

30
Q

Earnings per share

A

Earnings per share = Net income - dividends per share/stock/ average outstanding shares

31
Q

Dividends per share

A

Dividends per share = Dividends - special dividends/ number of outstanding shares

32
Q

Price earnings ratio

A

Price earnings ratio = tells us how much the market is willing to pay for each dollar of profit in the company. Shows market confidence in the business.

33
Q

The four major ratio measurements that users of the financial statements perform to gauge the effectiveness and efficiency of a company’s management are?

A

liquidity, activity, profitability, and coverage

Finance for Non-Financial Professionals - Coursera (1 decks)

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