8 - Performance Measures Flashcards
What does the Current Ratio tell us? How is it calculated?
“Can the company pay their short-term liabilities?
Current Ratio : Current Assets / Current Liabilities”
What does the Debt to Equity Ratio tell us? How is it calculated?
“How is the company financing its capital?
Debt to Equity Ratio : Total Debt / Total Equity”
What does the Debt to Total Assets ratio tell us? How is it calculated?
“What proportions of the company’s assets are encumbered with debt?
Debt to Total Assets : Total Liabilities / Total Assets”
What does Gross Margin % tell us? How is it calculated?
“How profitable is the product after COGS?
Gross Margin : Gross Profit / Net Sales”
What does Operating Profit Margin tell us? How is it calculated?
“How profitable is the product after all expenses (except interest and taxes)?
Operating Profit Margin : Operating Profit / Net Sales”
How is Return on Investment (ROI) calculated?
“ROI : Return / Investment
Example: You Invest $100 to buy a machine that generates $60 in Operating Income
$60 / $100 : 60% ROI”
What does Return on Assets tell us? How is it calculated?
“What % return are the assets generating?
Return on Assets : Net Income (net of interest & taxes) / Average Total Assets”
How is Market/Book ratio calculated?
Market Value of Common Stock / Book Value of Common Stock
What is Inventory Turnover and how is it calculated?
“How quickly does inventory get sold?
Inventory Turnover : COGS / Average Inventory”
What is the Quick Ratio and how is it calculated?
“It measures short-term liquidity- and only includes assets that are quickly available (i.e. not inventory)
Quick Ratio : (Current Assets - Inventory) / Current Liabilities”
What is Average Collection Period- and how is it calculated?
“How many days does it take the company to collect payment on A/R?
Average Collection Period : Average AR / Average Sales Per Day”
What is an Internal Failure?
Products have quality defects- but are caught BEFORE they leave the warehouse.
What is an External Failure?
“Product reaches the customer- but they are not satisfied with the quality of the product.
This includes recalls.”
What is Appraisal Cost?
Quality control- testing & inspection costs.
