FAR 1F - Financial Ratios - Other

Question 1

RoE and Debt Ratio Relationship

Answer 1

RoA = RoE * (1- Debt Ratio)

Debt Ratio = Total Debt / Total Assets

Question 2

Equity Multiplier

Answer 2

Assets / Common Equity

Question 3

Cost of holding A/R (interest)

Answer 3

(Sales/days period) * collection period * required rate of return

OR

Average A/R Balance * Required rate of return

Question 4

ROE using DuPont Method

Answer 4

Profit Margin * Asset Turnover * Leverage or Equity Multiplier

OR

(Net income - Pref Divi / Net Sales)

*

Net Sales / Average Assets

*

Average Assets / Average Common Equity

Question 5

ROA

Answer 5

Net Income / Average Assets

OR

Profit Margin * Asset Turnover

OR

(Net income - Pref Divi / Sales)

*

Sales / Average Assets

Question 6

Sustainable Equity Growth Rate (SEGR)

Answer 6

RoE * (1-Dividend payout ratio)

Question 7

Economic Value Add EVA

Answer 7

After-tax operating income - ((total assets - current liabilities) * WACC)

total assets - current liabilities = Invested Capital

After-tax operating income = NOPAT = EBIT * (1-tax rate)

EBIT should take non-operating items out

Question 8

Forward P/E Ratio

Answer 8

Today’s Stock price / Future EPS

Question 9

Defensive interval ratio

Answer 9

Current assets / Daily operating expenses