6.0 ratios and performance indicators

Question 1

Management should use the Acid-Test because : ?

Answer 1

To test the short-term liquidity

Question 2

Return on Assets (ROA) Formula

Answer 2

= Net income / average assets

Question 3

Asset turnover formula :

Answer 3

= Net Sales /Average assets

Question 4

Profit Margin formula :

Answer 4

= Net Income /Net sales

Question 5

Current Ratio formula:

Answer 5

= Current assets/ current liabilities

Question 6

Inventory turnover ratio:

Answer 6

= COGS/average inventory

Question 7

Times interest earned formula:

Answer 7

= Income before interest expense & taxes / Interest expense

Question 8

Accounts receivable turnover :

Answer 8

= Net Credit sales/ Average accounts receivable

Question 9

Dividend payout ratio:

Answer 9

= Cash dividends/Net Income

Question 10

A/R turnover in days:

Answer 10

360 or 365 / A/R turnover ratio

Question 11

Dividends per share payout ratio:

Answer 11

=Dividends per share/Earnings per share

Question 12

Earnings per share:

Answer 12

= Net income -Preferred dividends / Weighted -average common shares outstanding

Question 13

Days sales outstanding (DSO) :

Answer 13

=Accounts receivable/ ( Sales on credit /365)

Question 14

Debt to equity ratio:

Answer 14

=Total debt/ total equity

Question 15

Return on assets :

Answer 15

= Net income/Average total assets

Question 16

Gross margin :

Answer 16

= Gross Profit/ sales

Question 17

Price earnings ratio:

Answer 17

= Market price per share(Share Price)/ earnings per share (EPS)

Question 18

Quick ratio:

Answer 18

= (Cash+ Cash equivalents+ Marketable securities +net accounts receivable) - Inventory - Prepaids / Current liabilities

Question 19

Return on Sales formula:

Answer 19

= Earnings before interest and taxes/ Net sales

Question 20

Accounts payable turnover

Answer 20

=COGS/ average accounts payable

Question 21

Days sales in receivable :

Answer 21

= 365/ accounts receivable turnover

Question 21

Inventory turnover :

Answer 21

= COGS/ average inventory

Question 22

Days payables outstanding:

Answer 22

= 365/ Accounts payable turnover

Question 23

Days supply in inventory:

Answer 23

= 365 days/ inventory turnover