Accounting Ratios Flashcards
Return on Equity (ROE)
Net Income / Equity
DuPont Framework
ROE: Net Income / Equity = Profitability: Net Income / Sales (Profit Margin) * Efficiency: Sales / Assets (Asset Turnover) * Leverage: Assets / Equity (Assets-to-Equity)
Assets-to-Equity Ratio
Leverage
Assets / Equity
Asset Turnover
Efficiency
Sales / Assets
Profit Margin
Profitability
Net Income / Sales
How do you set up a common-size statement?
Divide all of the financial statement numbers by Sales for the year
Current Ratio
Current Assets / Current Liabilities
Debt Ratio
Liabilities / Assets
Number of days’ sales in inventory
365 / inventory turnover
Cost of goods sold / inventory
Average Collection Period
365 days / Accounts receivable turnover
Accounts receivable turnover = sales / accounts receivable
Price-Earnings Ratio
Market value of shares / Net income
Fixed Asset Turnover
Sales / Average Fixed Assets
Debt-to-Equity Ratio
Total Liabilities / Stockholder’s Equity
