Chapter 3 Textbook/slides Flashcards
A standardized financial statement presenting all items in percentage terms is known as
Common-Size Statement
When balance sheet items are shown as a percentage of assets and income statement items are shown as a percentage of sales this is known as a
Common-Size Statement
What is the cash percentage of $165 in assets compared to $3,373 in total assets?
4.9%
T/F- the totals of the common-size statements may not all check to 100% due to rounding errors
True
What is another way to avoid problems involved in comparing companies of different sizes by calculating and comparing
Financial Ratios
Relationships determined from a firm’s financial information and used for comparison purposes are recognized as
Financial Ratios
What are the 5 traditional grouped categories of financial ratios?
1) Short-term solvency, or liquidity, ratios
2) Long-term solvency, or financial leverage ratios
3) Asset Management, or turnover ratios
4) Profitability Ratios
5) Market Value Ratios
What are the 3 liquidity ratios?
Current Ratio
Quick Ratio
Cash Ratio
Short term solvency ratios as a group are intended to provide information about a firm’s liquidity, and these ratios are sometimes called?
Liquidity Measures
What is the primary concern of a company with solvency in the short-term?
The firm’s ability to pay its bills under the short run without undue stress
T/F- Liquidity ratios are interesting to short-term creditors b/c financial managers are constantly working with banks and other short-term lenders
True
What is one advantages of looking at current assets and liabilities?
Their book value and market values are likely to be similar
What is the current ratio formula?
Current Assets DIVIDED BY Current Liabilities
What kind of test is the current ratio test?
Short-term liquidity
To a creditor, particularly a short-term creditor such as supplier, the HIGHER OR LOWER current ratio results in the better
HIGHER
Borrowing money in the long term to raise money, increase cash in the short run and an increase in long-term debt, bu have no effect on current liabilities. This would raise or lower current ratio?
Raise
What is the formula for the Quick Ratio test?
Current Liabilities
What is often the least current asset?
Inventory
What is the formula for cash ratio?
Current Liabilities
What type of ratios are intended to address the firm’s long-run ability to meet its obligations, or more generally, its financial leverage?
Long term Solvency ratios
What are the 5 financial leverage ratios?
Total Debt Ratio
Debt- Equity Ratio
Equity Multiplier
Times Interest Earned
Cash Coverage
Which ratios takes into account all debts of all maturities to all creditors that can be defined in several ways?
Total Debt Ratio
What is the formula for total debt ratio?
Total Assets
What is the formula for debt-equity ratio?
Total debt/ Total Equity
What is the formula for equity multiplier?
Total assets / Total Equity = 1+ Debt-Equity Ratio
1 + Debt-equity ratio is which formula?
Equity multiplier
What is the formula for times interest earned
Earnings before interest taxes DIVIDED BY
Interest
What is the cash coverage formula?
Interest
What are the types of asset management ratios?
Inventory Ratios
Receivable Ratios
Payables Ratios
Asset turnover ratios
What are the two different types of inventory ratios?
Inventory Turnover
Days’ Sales in Inventory
What is the formula for Inventory Turnover?
COGS DIVIDED Inventory
What is the formula for days sales in inventory?
365/ Inventory
What are the two different types of receivables ratios?
Receivable Turnover
Days Sales in Receivables
What is the formula for Receivables Turnover?
Sales / AR
What is the formula for days sales in receivables?
365 / Receivables Turnover
What are the two different types of payable ratios?
Payables Turnover
Days’ Costs in Payables
What is the formula for Payables Turnover?
COGS / AP
What is the formula for days costs in payables?
365/ Payables Turnover
What are the two different types of asset turnover ratios?
Total Asset Turnover
Capital Intensity Ratio
What is the formula for Total Asset Turnover?
Sales / Total Assets
What is the formula for capital intensity ratio?
1 / Total Asset Turnover
What are the 3 profitability measures?
Profit Margin
Return on Assets
Return on Equity
What is the profit margin formula?
Net income / Sales
What is the return on assets formula?
Net income / Total assets
What is the formula for return on equity?
Net income / total equity
What are the 4 market value measures?
Earnings per share
Price earnings (PE) Ratio
Price-Sales Ratio
Market-to-book Ratio
What is the earnings per share formula?
Net income / Shares outstanding
What is the formula for price-earnings ratio?
Price per share / Earnings per share
What is the formula for price-sales ratio?
Price per share / sales per share
What is the formula for market-to-book ratio?
Market value per share / Book value per share
What is the formula for the Enterprise value?
Total market value of the stock + Book value of all liabilities - Cash
What is the formula for the EBITDA ratio?
Enterprise value / Earnings before interest + depreciation & amortization