Chapter 4: Fundamental Concepts in Financial Management and Financial Forecasting Flashcards
What are the 4 ratios?
- Liquidity Ratios
- Asset Management ratios
- Debt Management ratios
- Profitability ratios
- Market value ratios
What is a liquid asset?
- Easily converted to cash
- No need to affect asset price too much
What is liquidity ratio?
- Relationship of cash/ other current assets over current liabilities
What is current ratio?
- Current assets over current liabilities
What is quick ratio (acid test)?
- (Current assets - Inventories) over current liabilities
What is asset management ratio?
- How effective the firm manages assets
What is inventory turnover ratio?
- Sales over inventories
What is Day Sales Outstanding (DSO)?
- Receivables over average daily sales
What is fixed assets turnover ratio?
- Sales over net fixed assets
What is total assets turnover ratio?
- Sales over total assets
What are debt management ratios?
-How well firm’s manage debt.
What is debt ratio?
- Total debt over total assets
What is times-interest-earned (TIE) ratio?
- EBIT over interest charged
- Firms’ ability to pay back interest
What are profitability ratios?
-How equity, liquidity, asset management and debt affect operation results
What is operating margin?
- EBIT/Operating income over sales
What is net profit margin?
- Net income over sales
What is return on total investment ratio?
- Net income over total assets
What is basic earning power ratio (BEP)?
- Operating income/EBIT over total assets
What is return on common equity (ROE)?
- Net income over common equity
What is market value ratio?
- Relates stock price to earnings and book value per share.
What is Price/Earnings(P/E) ratio?
- Price of the share over its earnings
What is Market/Book ratio?
- Stock market price over book value
