FAR Ratios Flashcards
Ratio and Variance Analysis
What is the equation for inventory turnover
Cost of goods sold/average inventory (COGS/AI)
What is the equation for Debt to equity ratio?
Example
total assets of $760,000, capital stock of $150,000, and retained earnings of $215,000 find debt to equity.
Total liabilities/equity
Remember** Equity = Cap Stock+RE and
Liabilities= assets-equity
Provide the equation for Net profit margin
NI/NS
NPM not potential mums Nuns
Which ratio decreases when inventory is sold at cost?
Net profit margin b/c the numerator net income doesn’t change while the denominator increases net sales.
How do you calculate a return on assets?
NI/Avg. Total Assets
Dupont return on assets
return on assets with PMS and NS
= NI/NSNS/Avg total assets
Or PM NS/ATA
formula for return on equity
NI-PD/average equity
I in equity NI
PD PLEASE DONT FORGET PREFERRED DIVIDENDS
current ratio
current assets/current liabilities
quick ratio
The quick ratio is calculated by dividing [cash + cash equivalents + marketable securities + accounts receivable (net)] by current liabilities
Accts receivable turnover
NS/Accts Rec NET
inventory turnover
COGS/Avg inventory
OO COGS
days in inventory
ending inventory/ (COGS/365)
debt to equity ratio
total liabilities/total equity
debt ratio
total liabilties/total assets* Opposite of current ration but total instead of current*
Cost of goods sold=
Beg inv.
+purchases
=Goods available for sale
-ending inventory
=COGS
