A4 - Financial Ratios

Question 1

Current ratio

Answer 1

Current assets / current liabilities

Question 2

Acid-test ratio

Answer 2

Cash (& equivalents) + marketable securities + net A/R / current liabilities

Question 3

Cash ratio

Answer 3

Cash (& equivalents) + marketable securities / current liabilities

Question 4

A/R turnover

Answer 4

Net credit sales / average net receivables

Question 5

A/R turnover (in days)

Answer 5

Average net receivables / (net credit sales/365)

Question 6

Inventory turnover

Answer 6

COGS / average inventory

Question 7

Inventory turnover (in days)

Answer 7

Average inventory / (COGS/365)

Question 8

Operating cycle

Answer 8

A/R turnover (in days) + inventory turnover (in days)

Question 9

Working capital turnover

Answer 9

Net sales / average working capital

Question 10

Net profit margin

Answer 10

Net income / net sales

Question 11

Return on total assets

Answer 11

Net income / average total assets

Question 12

DuPont return on assets

Answer 12

Net profit margin x total asset turnover

Question 13

Return on investment

Answer 13

Net income + interest expense x (1 - tax rate) / average (LT liabilities + equity)

Question 14

Return on common equity

Answer 14

(Net income - preferred dividends) / average common equity

Question 15

Debt to equity ratio

Answer 15

Total liabilities / common stockholders’ equity

Question 16

Debt ratio

Answer 16

Total liabilities / total assets

Question 17

Times interest earned

Answer 17

EBIT / interest

Question 18

Operating cash flow to total debt ratio

Answer 18

Operating cash flow / total debt

Question 19

Total asset turnover

Answer 19

Net sales / average total assets

Question 20

Working capital

Answer 20

Current assets - current liabilities

Question 21

Total asset turnover

Answer 21

Net sales / average total assets

Question 22

A/P turnover

Answer 22

COGS / average accounts payable

Question 23

Days in A/P

Answer 23

Average accounts payable / (COGS/365)

Question 24

Net operating margin percentage

Answer 24

Net operating income / net sales

Question 25

Gross (profit) margin percentage

Answer 25

Gross (profit) margin / net sales

Question 26

Operating cash flow per share

Answer 26

Operating cash flow / common shares outstanding

Question 27

Degree of financial leverage

Answer 27

EBIT / EBT

Question 28

Earnings per share

Answer 28

Net income - preferred dividends / weighted-average common shares outstanding

Question 29

Price/earnings ratio

Answer 29

Market price per share / diluted earnings per share

Question 30

Dividend payout ratio

Answer 30

Dividends per common share / diluted earnings per share

Question 31

Dividend yield

Answer 31

Dividends per common share / market price per common share

Question 32

Book value per share

Answer 32

Total stockholders’ equity - preferred stock / number of common share outstanding