Evaluating Financial Statements Flashcards

1
Q

List the formula for times interest earned.

A

(Net Income + Interest Expense + Income Tax Expense) / Interest Expense.

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2
Q

List the formula for number of days’ supply in inventory.

A

365/ Inventory Turnover.

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3
Q

What are the general types of ratios?

A

Liquidity/Solvency; Operational Activity; Profitability; Equity/Investment Leverage.

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4
Q

What do operational activity ratios measure?

A

They measure the efficiency with which a firm carries out its operating activities.

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5
Q

List the formula for working capital.

A

Current Assets - Current Liabilities.

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6
Q

List the formula for determining Operating Cycle Length.

A

Days’ Sales in Accounts Receivable + Days’ Supply in Inventory.

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7
Q

List the formula for the Acid Test or Quick Ratio.

A

(Cash + Net Receivables + Marketable Securities) / Current Liabilities.

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8
Q

List the Accounts Receivable Turnover ratio formula.

A

Net Credit Sales / Average Net Accounts Receivable.

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9
Q

List the working capital ratio formula.

A

Current Assets / Current Liabilities.

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10
Q

What do liquidity (or solvency) ratios measure?

A

Measure the ability of the firm to pay its debts as they come due.

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11
Q

List the formula for Number of Days’ Sales in Accounts Receivable (AR).

A

365/ AR Turnover.

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12
Q

List the cash availability or interval ratio formula.

A

(Cash + Net Receivables + Marketable Securities) / Average Daily Cash Expenditures.

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13
Q

List the formula for times preferred dividend.

A

Net Income / Annual Preferred Dividend Obligation.

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14
Q

List the formula for inventory turnover.

A

Cost of Goods Sold (COGS) / Average Inventory.

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15
Q

What is financial statement ratio analysis?

A

The development of quantitative relationships between various elements of a firm’s financial statements.

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16
Q

List the total common stock dividend payout rate formula.

A

Cash Dividends to Common Shareholders / Net Income to Common Shareholders.

17
Q

List the book value per preferred share ratio formula.

A

Preferred Shareholders’ Equity (including dividends in arrears) / Number of Outstanding Preferred Stocks.

18
Q

What do equity/investment leverage ratios measure?

A

Measure relative sources of equity and equity value.

19
Q

List the debt to equity ratio formula.

A

Total Liabilities / Total Shareholders’ Equity.

20
Q

List the price to earnings ratio formula.

A

Market Price for a Common Share / Earnings Per Share (EPS).

21
Q

List the profit margin formula.

A

Net Income/Net Sales.

22
Q

List the common stock yield formula.

A

Dividend per Common Share / Market Price per Common Share.

23
Q

List the return on common stockholders’ equity formula.

A

(Net Income-Current Period Preferred Dividend Obligation) / Average Common Stockholders’ Equity.

24
Q

List the debt ratio formula.

A

Total Liabilities / Total Assets.

25
Q

List the per share common stock dividend pay out rate formula.

A

Cash Dividends per Common Share / Earnings Per Share (EPS).

26
Q

List the book value per common stock ratio formula.

A

Common Shareholders’ Equity / Number of Outstanding Common Shares.

27
Q

List the return on total assets formula.

A

(Net Income + Interest Expense (net of tax)) / Average Total Assets.

28
Q

What do profitability ratios measure?

A

Aspects of a firm’s operating (income/loss) results on a relative basis.

29
Q

List the return on owner’s equity formula.

A

Net Income / Average Stockholders’ Equity.

30
Q

List the owner’s equity ratio formula.

A

Shareholders’ Equity / Total Assets.