Exam 3 (Chapter 3 Focus terminology) Flashcards
Financial ratios are grouped in what categories?
- Short-term solvency, or liquidity, ratios
- Long-term solvency, or financial leverage, ratios
- Asset management, or turnover, ratios
- Profitability ratios
- Market value ratios
Definition of financial ratios
Ways of comparing and investigating the relationships between different pieces of financial information
Define: Short-term solvency (liquidity) ratios
The firm’s ability to pay its bills over a short period of time
Types of short-term ratios
- Current ratio
- Quick ratio
- Cash ratio
Types of Long-term solvency (financial leverage) ratios
- Total debt ratio
- Debt-equity
- Equity multiplier
- Times interest
- Cash coverage
Types of Asset Management (turnover) ratios
- Inventory Turnover
- Days sales in inventory
- Receivables turnover
- Payables turnover
- Days in receivables
- Days cost in payables
- Total asset turnover
- Capital Intensity
Define: Long-term solvency (financial leverage) ratios
Intended to address the firm’s long-run ability to meet its obligations
Define: Asset Management (turnover) ratios
Intended to describe how efficiently, or intensively, a firm uses its assets to generate assets
Another name for Asset Management (turnover) ratios
“Asset utilization ratios”
Define: Profitability ratios
Measures how efficiently the firm uses its assets and how efficiently the firm manages its operation
Define: Market value ratios
Deals with market price per share of the stock
Types of Market value ratios
- Price earnings ratio
- Price Sales
- Market-to-book
- EBITA ratio
Types of Profitability ratios
- Profit margin
- Return on Assets (ROA)
- Return on equity (ROE)
- DuPont Identity (ROE)
PEG Ratio equation
PE ratio/ Expected growth percent x100
Why PE varies
Differences in the expected future earnings growth tells us why the PE varies
