Finance Flashcards
What is Current Ratio?
Current Ratio = Current Assets / Current Liabilities
This ratio analyzes the working capital of the organization, allow us to assess their ability to meet its short-term debts (since they can sell off current asset to pay for current liabilities).
What is Quick Ratio?
Quick Ratio = (Current Assets - Inventory - Prepaid Expenses) / Current Liabilities
Also known as the “Acid Test”, this ratio is often better measure of organization’s liquidity (since inventory/prepaid expenses are not always liquid)
What is Total Asset Turnover?
Total Asset Turnover = Sales / Average Total Assets
How much Sales do we generate per dollar of assets? How efficient are we at using our assets?
What is AR Turnover?
AR Turnover = Sales / Average AR
How much Sales per average AR: the more sales there is, that means we turn AR over quicker.
How to calculate Average Collection Period?
Avg Collection Period = Days / AR Turnover
Days = Days in this period
What is Inventory Turnover?
Inventory Turnover = COGS / Avg Inventory
How to calculate Days in Inventory?
Days in Inventory = Days / Inventory Turnover
Days = Days in this period
What is Debt Ratio?
Debt Ratio = Total Debt / Total Asset
What is Debt-Equity Ratio?
Debt-Equity Ratio = Total Debt / Total Equity
What is Equity Multiplier?
Equity Multiplier = Total Asset / Total Equity
How to calculate Time Interest Earned?
Time Interest Earned = EBIT / Interest
What is Profit Margin?
Profit Margin = Net Income / Sales
What is Return on Asset?
ROA = Net Income / Avg Total Asset
What is Return on Equity?
ROE = Net Income / Avg Total Equity
What is Dividend Payout Ratio?
Dividend Payout Ratio = Dividend Paid / Net Income
What is Retention Ratio?
Retention Ratio = 1 - Payout Ratio
Ratio of Net Income that is kept through retained earnings.
ie. if dividend paid is 2%, then 98% is retained
What is Sustainable Growth Rate?
Sustainable Growth Rate = ROE x Retention Ratio
= Net Income x Retention Ratio / Avg Equity
= $ of Net Income Retained / Avg Equity
What is Price Earnings Ratio?
P/E Ratio = Market Price per share / Earnings per share
How do you calculate Dividend Yield?
Dividend Yield = Dividend per share / Market Price
What is the Dividend Payout Ratio?
Dividend Payout Ratio = Dividend per share / Earnings per share
