F2M7 Flashcards
Ratios are financial indicators that distill ___ information about a business entity
Relevant
Horizontal analysis
period to period comparison
Vertical analysis
to industry by comparing ratios in the other statements
Current Ratio
CA/CL
Quick Ratio
(CA-inventory)/Cl
With turnovers the __ the better
higher
A/R turnover
Sales / Average accounts receivable
Days in A/R
365 / sales/ending ar
Inventory turnover
COGS/ average inventory
Days in inventory
365/sales/ending inventory
A/P turnover
COGS/ average ap
Days in A/P outstanding
365/cogs/ending ap
What does the cash conversion cycle measure
core business generating revenue
Cash conversion cycle formula
days in a/r + days in inventory - days in a/p
What does asset turnover measure
effective asset use
too high would have unneeded resources and too low would be loosing sales
Asset turnover formual
sales/ average total assset
Do you use gross or net sales for turnover?
net (meaning minus returns and discounts)
Profit margin calc
net income/ net sales
ROA measures
turning assets into profit
DuPont ROA
same as regular ROA, but breaks it down
Return on Equity meaning
higher than the required rate, is it sustainable
Return on Equity formula
net income/ avg. total equity
Return on sales formula
EBIT/sales
EBIT= sales-COGS-S&GA-Dep
Return on sales meaning
operating margin but excludes the degree of financial leverage
Gross profit margin
sales - COGS / sales
Operating cash flow measures
core business
operating cash flow formula
cash flow from operations/current liabilities
Coverage ratios measure
long term risk and capital structure
Debt to equity formula
liabilities/equity
Debt to equity measures
pros and cons for borrowing
high debt means lower equity
use accounting equation to better help understand
Total debt ratio formula
total liabilities/total asset
as total debt increases, risk increases
Equity Multiplier formula
total assets/total equity
Times interest earned
EBIT/interest expense
covers ability to cover interest charges
EPS formula
(NI-PD) / weighted avg common shares outstanding
PE ratio
price per share / basic earnings per share
Dividend payout meaning
if payout is low, they may be investing in the company for growth
if it is high, then you will have dividend returns
Dividend payout formula
share value / net income
Retention dividend payout
1 - dividend payout
working capital
current assets - current liabilities
Net profit
net income / net sales
COGS
beginning inventory + purchases - ending inventory
