FAR 2 Module 8 Flashcards
What are the Profitability ratios
Profitability ratios are financial metrics that evaluate a company’s ability to generate profit relative to its revenue, assets, and equity
- Gross (Profit) Margin
- Profit Margin
- Return on Sales
- Return on Assets (ROA)
- DuPont Return on Assets
- Return on Equity
- Operating cash flow
What are the liquidity ratios?
Liquidity ratios measure how easily a company can pay off its short-term debts using its current assets (things like cash, accounts receivable, and inventory)
- Current Ratio
- Quick Ratio
- Accounts Receivable Turnover
- Days Sales in Accounts Receivable
- Inventory Turnover
- Days in Inventory
- Accounts Payable Turnover
- Days of Payable Outstanding
- Cash Conversion Cycle
What are the Solvency Ratios?
Solvency ratios are financial metrics that assess a company’s ability to meet its long-term debt obligations.
- Debt to Equity
- Total Debt Ratio
- Equity Multiplier
- Times interest earned
Activity Ratio (….Turnover)
How to remember:
AR Turnover
Inventory Turnover
AP Turnover
And what does Activity and Profitability have in common?
AR Turnover
Inventory Turnover
AP Turnover
- Numerator: Net Sales or COGS
Receivable: Net Sales
Inventory and Payable: COGS - Denominator: Average of Account being asked
Activity and Profitability have in common:
The Denominator is the average of the account being asked
Anything with days (eg: Days in Inventory)
How to remember:
Days Sales in AR
Days in Inventory
Days of Payable Outstanding
Days Sales in AR
Days in Inventory
Days of Payable Outstanding
- Numerator: Ending balance of Account being asked
- Denominator: Related Accounts/365
AR: Net Sales
AP & Inventories: COGS for AP and Inventories
Profitability Ratio (Return on…)
How to remember:
Return on Assets
Return on Equity
And what does Activity and Profitability have in common?
Return the NET to the TOTAL AY
- Numerator: Profit so we always use Net Income
- Denominator: Average of Account being asked
Activity and Profitability have in common:
The Denominator is the average of the account being asked
What are the ratio formulas for:
Gross (Profit) Margin
Profit Margin
What are the ratio formulas for:
Current ratio
Quick ratio
What is the ratio for
DuPont Return on Assets:
Profit margin X Asset Turnover
Operating Cash Flow Ratio:
The operating cash flow ratio shows how well a company can use its cash from everyday business to pay its short-term debts.
What is the Cash Conversion Cycle formula:
The Cash Conversion Cycle is how long it takes a company to turn its investments in inventory into cash flow from sales
What are the Ratios for:
Debt to Equity Ratio
Equity Multiplier
Total Debt Ratio
What is the Times Interest Earned Ratio:
EBIT: Earnings before Interest and taxes
___________________________
Interest expense
Return on Sales:
EBIT (Earnings before interst & Tax)
___________________________
Net Sales
