FASB 2 Flashcards
What is the purposes or types of measures being analyzed for the Ratios are:
- Liquidity/solvency;
- Operational Activity;
- Profitability;
- Equity/Investment leverage
The formula of working Capital Ratio(WCR)?
Working Capital = Current Assets - Current Liability
Working Capital Ratio = Current Assets / Current Liabilities
What is Securities Defensive-Interval Ratios?
it measures the quantitative relationship between highly liquid assets and the average daily use of cash in terms of the number of days that cash and assets can be quickly converted to support operating costs.
Securities Defensive-Interval Ratios = (Cash + (Net) Receivables + Marketable Securities) / Average Daily Cash Expenditures
What is Account Receivable turnover?
Account Receivable turnover measures the number of times that accounts receivable turnover (are incurred and collected) during a period. Indicates the quality of credit policies (and the resulting receivables) and the efficiency of collection procedures.
Accounts Receivable Turnover = (Net) Credit Sales / Average (Net) Accounts Receivable (e.g. (Beginning + Ending)/2)
What is inventory turnover?
Inventory turnover measures the number of times that inventory turns over (is acquired and sold or used) during a period. Indicates over or under stocking of inventory or obsolete inventory.
Inventory Turnover = Cost of Goods Sold / Average Inventory (e.g. (Beginning + Ending)/2)
What is Operating Number of Cycle?
Operating Number of Cycle measures the average length of time to invest cash in inventory, convert the inventory to receivables, and collect the receivables; it measures the time to go from cash back to cash.
Number of Days’ Supply in Inventory = (300 or 360 or 365 (or other measure of business days in a year)) / Inventory Turnover (computed above)
Number of Days’ Sales in Average Receivables = (300 or 360 or 365 (or other measure of business days in a year)) / Accounts Receivable Turnover (computed above)
Operating Number of Cycle = Days in Operating = Number of Days’ Sale in A/R + Length Cycle Number of Days’ Supply in Inventory
What is Acid-Test Ratio (aka Quick Ratio)?
Measures the quantitative relationship between highly liquid assets and current liabilities in terms of the “number of times” that cash and assets that can be converted quickly to cash cover current liabilities.
Acid-Test Ratio (also known as Quick Ratio) = (Cash + (Net) Receivables + Marketable Securities) / Current Liabilities
What is interest earning ratio?
Measures the ability of current earnings to cover interest payments for a period.
Times Interest Earned Ratios = (Net Income + Interest Expense + Income Tax) / Interest Expense
What is “Times Preferred Dividend Earned Ratio”?
Measures the ability of current earnings to cover preferred dividends for a period.
Times Preferred Dividend Earned Ratio = Net Income / Annual Preferred Dividend Obligation
What is financial statement ratio analysis?
The development of quantitative relationships between various elements of a firm’s financial statements.
List the cash availability or interval ratio formula.
(Cash + Net Receivables + Marketable Securities) / Average Daily Cash Expenditures.
What do operational activity ratios measure?
They measure the efficiency with which a firm carries out its operating activities.
What do liquidity (or solvency) ratios measure?
Measure the ability of the firm to pay its debts as they come due.
What are the general types of ratios?
Liquidity/Solvency;
Operational Activity;
Profitability;
Equity/Investment Leverage.
Debt to Equity ratio
Debt to Equity ratio = Total Debt (Liabilities) / Owner’s Equity
Price-Earnings Ratio (P/E Ratio)
Measures the price of a share of common stock relative to its latest earnings per share. Indicates a measure of how the market values the stock, especially when compared with other stocks.
Price-Earnings Ratio (P/E Ratio) = Market Price for a Common Share / Earnings per (Common) Share (EPS)