Evaluating Financial Statements Flashcards
List the formula for times interest earned.
(Net Income + Interest Expense + Income Tax Expense) / Interest Expense.
List the formula for number of days’ supply in inventory.
365/ Inventory Turnover.
What are the general types of ratios?
Liquidity/Solvency; Operational Activity; Profitability; Equity/Investment Leverage.
What do operational activity ratios measure?
They measure the efficiency with which a firm carries out its operating activities.
List the formula for working capital.
Current Assets - Current Liabilities.
List the formula for determining Operating Cycle Length.
Days’ Sales in Accounts Receivable + Days’ Supply in Inventory.
List the formula for the Acid Test or Quick Ratio.
(Cash + Net Receivables + Marketable Securities) / Current Liabilities.
List the Accounts Receivable Turnover ratio formula.
Net Credit Sales / Average Net Accounts Receivable.
List the working capital ratio formula.
Current Assets / Current Liabilities.
What do liquidity (or solvency) ratios measure?
Measure the ability of the firm to pay its debts as they come due.
List the formula for Number of Days’ Sales in Accounts Receivable (AR).
365/ AR Turnover.
List the cash availability or interval ratio formula.
(Cash + Net Receivables + Marketable Securities) / Average Daily Cash Expenditures.
List the formula for times preferred dividend.
Net Income / Annual Preferred Dividend Obligation.
List the formula for inventory turnover.
Cost of Goods Sold (COGS) / Average Inventory.
What is financial statement ratio analysis?
The development of quantitative relationships between various elements of a firm’s financial statements.