Chapter 15: Financial Analysis formulas

Question 1

Current ratio

Answer 1

current asset/current liabilities

Question 2

Acid-test ratio

Answer 2

cash+short-term investment + acc. receivable ( net) / current liabilities

Question 3

Acc. receivable turnover

Answer 3

net credit sales / average net acc. receivable

Question 4

Inventory turnover

Answer 4

COGS / average inventory

Question 5

days in inventory

Answer 5

365/ inventory turnover

Question 6

profit margin

Answer 6

Net income/ net sales

Question 7

Asset turnover

Answer 7

net sale/ average total assets

Question 8

Return on asset

Answer 8

Net income/ average total assets

Question 9

Return on ordinary shareholder’s equity

Answer 9

net income - preference dividend / average ordinary shareholder’s equity

Question 10

Earnings per share

Answer 10

net income - preference dividend / weighted average ordinary share outstanding

Question 11

The average collect period in days

Answer 11

365 / (net credit sales / average net Acc. receivables)

Question 12

Debt-to-asset ratio

Answer 12

total liabilities/ total assets

Question 13

Time interest earned

Answer 13

(net income + interest expense +income tax expense) / interest expense