FAR 26 - FIN STATEMENT ANALYSIS Flashcards
What does the defensive interval ratio measure?
Defensive interval ratio measures the length of time a company can continue to pay its bills using only its liquid current assets
**it assesses liquidity
What does the return on stockholders equity measure?
Return on stockholders equity measures profitability
What is the asset turnover ratio?
Asset Turnover = sales / total assets
What is the income as a percentage of sales ratio?
Income as percentage of sales = income / sales
What is the return on investment ratio?
ROI = income / assets
How do you calculate receivables turnover in days?
- receivables turnover = sales / average receivables
2. 365 / receivables turnover
What does the times interest earned ratio measure?
Times interest earned ratio measures the ratio of the entity’s income that would be available to pay interest to the actual amount of interest incurred
What is the times interest earned ratio?
income before interest and taxes / interest
What is the price-earnings ratio?
market price of common stock / earnings per share
**earnings per share in this case = net income / common stock outstanding
What is the inventory turnover ratio?
COGS / avg inventory
What is the quick ratio?
Quick assets / current liabilities
What are quick assets?
Quick assets are those that can be converted into cash rapidly
When calculating inventory turnover (cogs/avg inventory), if you are only given net purchases, how do you calculate cogs?
the cogs is net purchases minus any increase in inventory (or plus any decrease)
What is the acid test ratio?
The acid test ratio is quick assets / total current liabilities
How do you calculate an entity’s operating cycle?
The operating cycle is the sum of average days to collect accounts receivable + average days sales in inventory
