Chapter 4 - Financial Statement Analysis

Question 1

What is the right hand side of the balance sheet called?

Answer 1

Capital structure, it finances the left hand side

Question 2

Current Ratio

Answer 2

Current Assets/Current Liabilities

Question 3

Quick Ratio

Answer 3

(Current Assets-Inventories)/Current Liabilities

Question 4

Inventory Turnover

Answer 4

Sales/Inventories

Question 5

DSO (ACP)

Answer 5

Receivables/Average Sales per day

If you get sales per year just /365

Question 6

FA Turnover

Answer 6

Sales/Net Fixed Assets

Question 7

TA Turnover

Answer 7

Sales/Total Assets

Question 8

Debt Ratio

Answer 8

Total Debt/Total Assets

Question 9

TIE Ratio

Answer 9

EBIT/Interest Charges

Question 10

Operating Margin

Answer 10

EBIT/Sales

Question 11

Profit Margin (ROS)

Answer 11

Net Income/Sales

Question 12

Basic Earning Power

Answer 12

EBIT/Total Assets

Question 13

P/E Ratio

Answer 13

Price/EPS

Question 14

EPS

Answer 14

NI/# of shares on sale

Question 15

ROA

Answer 15

NI/Total Assets

Question 16

ROE

Answer 16

NI/Total Equity

Question 17

DuPont Equation

Answer 17

NI/S x S/A x A/E

Question 18

Equity Multiplier

Answer 18

Total Assets/Equity

Question 19

What happens when a company buys back stock?

Answer 19

It goes into treasury stock. It reduces the equity section by the amount it bought back. The market reacts by causing an increase in the stock price. This happens because when they buy it back it sends a signal to the market saying that the company thinks that its stock is undervalued.

Question 20

Market Book Ratio

How much investors are willing to pay for $1 of book value equity

Answer 20

MP/Book value per share