Course 4 Week 3 Flashcards
John Jacob’s company recorded $60,000 in sales revenue and a cost of goods sold of $45,000 on their income statement this month. What is their percentage Gross Profit Margin? (Enter the answer as a whole number and without the % sign)
Correct! Using the formula (Sales Rev - COGS) / Sales Rev, John Jacob’s company would have a 25% Gross Profit Margin.
Sally’s Seashells company Income Statement shows that they have a Sales Revenue of $60,000 and Operating Earnings of $11,000. What is their percentage Operating Profit Margin? (Enter the answer as a whole number and without the % sign)
Correct! Using the formula Operating Earnings / Sales Revenue, Sally’s Seashells company would have an Operating Profit Margin of 18%.
Harry’s Wizarding Wands company recorded a net profit of $8,500 in addition to their Sales Revenue of $60,000 on their recent income statement. What is their Net Profit Margin? (Enter the answer as a whole number and without the % sign)
Correct! Using the formula Net Income / Sales Revenue, Harry’s Wizarding Wands would have a Net Profit Margin of 14%.
What does the debt to equity ratio evaluate?
What proportion of debt or equity a company is using to finance its assets
If a company has $30,000 debt and $60,000 equity, what is its debt to equity ratio?
Correct! The debt to equity ratio would be 0.5.
Which of the following statements is incorrect?
The higher the debt-to-equity ratio, the more profit the company has recorded
True or False: Generally, a high AP ratio indicates that you satisfy your accounts payable obligations quickly.
True
Gross Profit Margin
it shows the percentage of revenue that exceeds the cost of goods
How can you create a greater gross profit margin
Lowering costs or raising prices
Formula For Gross Profit Margin
(Sales Revenue-COGS)/Sales Revenue
Operating Margin
measurement of profit after paying expense but before taxes
How can you increase the operating margin
raise prices, lower expense, lower cogs
Operating Margin formula
Net Profit/Sales Rev
Current Ratio
is the ratio that shows a company’s ability to pay current debts
What is the current ratio formula
Current Assets / Current Liabilities
What’s a good and bad current ratio
> 1 Good
<1 Bad
Debit to Equity Ratio
Total Debit to Total Equity
D/E formula
Total Liabilities / Total Equity
What’s a safe and risky D/E ratio
Below 1 is safe
Above 2 is risky
What is the Tech Industry D/E
2 of below, they tend to have alot of R&D
What is the Banking Industry D/E
10, they borrow high amounts to lend high amounts
What is the Large Manufactures D/E
2-5
What is Big Pharma D/E
70, this sector is high capital sensitive
Accounts Payable Turnover
is a ratio that shows how fast a company pays back their debts
APT Formula
APT = Net Credit Purchase/ Average Accounts Payable
How do you find Average Accounts Payable
Starting AP + Ending AP divided by 2
What do you do after Net Credit Purchases/AAP
Divide 365 by that ratio
What is ART
Accounts Receivable Turnover
ART formula
Net credit sales/ Average Accounts Rec
DigiWidgit recorded operating cash flows totaling $152,000 and the total debt payable for the year was $77,000 What is their Cash Flow Coverage Ratio? (Enter your answer to the one-hundredth position, x.xx)
Correct! Their Cash Flow Coverage Ratio is 1.97.
$152,000 / $77,000 = 1.97
Vegg Delivery recorded current liabilities of $44,000 at the year’s start, current liabilities of $67,000 at year’s end, and Cash Flow from Operating Activities of $120,000. What is their Current Liability Coverage Ratio? (enter your answer to the one-hundredth position, x.xx)
Correct
Correct! Their Current Liability Coverage Ratio is 2.16.
($44,000 + $67,000) / 2 = $55,500
$120,000 / $55,500 = 2.16
Superior Suits recorded a cash flow from operations of $48,750 and net sales of $87,000. What is their Operating Cash Flow Margin ratio? (enter your answer to the one-hundredth position, x.xx)
Correct
Correct! Their Operating Cash Flow Margin Ratio is 0.56.
$48,750 (cash flow from operations) / $87,000 (net sales) = 0.56
What is Cash flow cover ratio
Company ability to pay long term debt, can it pay it’s debit obligations. Higher the ratio the better. Tends to be over 1
What is the formula for Cash flow cover ratio
Cash Flow from operation/ Total debt
What is Current Cash Debt ratio
Company ability to pay current debt, higher the better
What is Current Cash Debit Ratio Formula
Net Cash from operating/ average current liabilities
What is the the cash flow margin ratio
The ability to convert sales into cash flow in a percentage form. Above 50 % is good
What is the cash flow margin ratio
Cash Flow from operating/net sales
What is a big tip for communicating with a client
Short and Sweet
