Chapter 4 - Financial Statement Analysis Flashcards
What is the right hand side of the balance sheet called?
Capital structure. It finances the left hand side.
Current Ratio
Current Assets/Current Liabilities
Quick Ratio
(Current Assets-Inventories)/Current Liabilities
Inventory Turnover Ratio
Sales/Inventories
DSO Ratio (Average Collection Period) (Average Number Of Days After A Sale Before Receiving Cash)
Receivables/Avg Sales Per Day or Receivables/(Annual Sales/365) This ratio is an algebraic equivalent of the A/R formula
FA Turnover Ratio
Sales/Net Fixed Assets
TA Turnover
Sales/Total Assets
Debt Ratio
Total Debt/Total Assets
TIE Ratio
EBIT/Interest Charges
Operating Margin Ratio
EBIT/Sales
Profit Margin Ratio (Return On Sales)
Net Income/Sales
Basic Earning Power
EBIT/Total Assets
ROA Ratio
Net Income/Total Assets
ROE Ratio
Net Income/Total Common Equity
Price Earnings Ratio (How much investors are wiling to pay for $1 of earnings)
Price/Earnings per share
Market Book Ratio (How much investors are willing to pay for $1 of book value equity)
Market Price/Book value per share
DuPont Equation
ROE= Profit Margin x TA Turnover x Equity Multiplier
Equity Multiplier
Total Assets/Equity
Extended DuPont
See Notes
What happens when a company buys back stock?
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.
