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Financial Analysis And Reporting > Financial Ratios > Flashcards

Financial Ratios Flashcards

1
Q

Activity ratios

A

“Efficiency”: collecting accounts receivables, inventory turnover. How effectively assets or resources are being used

Inventory turnover 
Payables turnover 
Receivables turnover 
Days of sales outstanding
Payables turnover 
Number of days of payables
Working capital turnover 
Fixed asset turnover 
Total asset turnover
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2
Q

Liquidity ratios

A

Ability to meet short term obligations

Current ratio
Quick ratio
Cash ratio
Defensive interval ratio
Cash conversion cycle
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3
Q

Solvency ratios

A

Ability to meet long term obligations. Aka leverage ratios or LTD ratio

Debt to assets
Debt to capital
Debt to equity 
Financial leverage
Interest coverage 
Fixed charge coverage
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4
Q

Profitability ratios

A

Ability to generate profit

Gross profit margin
Operating profit margin 
Pre tax margin 
Net profit margin
Operating ROA 
ROA
Return on total capital 
ROE
Return on common equity
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5
Q

Valuation ratios

A

Quality of an asset or flow, ie earnings, associated with ownership, ie per share

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6
Q

Inventory turnover

A

Cogs / average inventory

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7
Q

Days of inventory on hand (DOH)

A

365 / inventory turnover

Inventory turnover: COGS/ avg inventory

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8
Q

Receivables turnover

A

Revenue/ average accounts receivables

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9
Q

Days of sales outstanding (DSO)

A

365 / receivables turnover

Receivables turnover: revenue/ average accounts receivables

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10
Q

Payables turnover

A

Purchases / accounts payable

Purchases: COGS + ending inventory - beginning inventory

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11
Q

Purchases

A

COGS + ending inventory - beginning inventory

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12
Q

Number of days of payables

A

365 / payables turnover

Payables turnover: purchases / average accounts payable

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13
Q

Working capital

A

Current assets - current liabilities

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14
Q

Working capital turnover

A

Revenues / average working capital

high is better

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15
Q

Fixed asset turnover

A

Revenue/ net fixed assets

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16
Q

Current ratio

A

Current assets / current liabilities

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17
Q

Quick ratio

A

Cash + marketable securities + accounts receivables

/ current liabilities

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18
Q

Cash ratio

A

Cash + marketable securities

/ current liabilities

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19
Q

Defensive interval ratio

A

Cash + marketable securities + AR
/ Daily cash expense

Daily cash expense: ( sum expenses) - noncash/ 365

  • higher is better
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20
Q

Cash conversion cycle

A

DOH + DSO - number of days payable

lower is better

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21
Q

Debt to assets

A

Total debt / total assets

Lower is better

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22
Q

Debt to capital

A

Total debt / total debt + sh.equity

Lower is better

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23
Q

Debt to equity

A

Total debt / total sh.equity

Lower is better

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24
Q

Financial leverage

A

Average total assets / average total equity

Higher is better

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25
Q

Interest coverage

A

EBIT / interest payments

Higher is better

26
Q

Fixed charge coverage

A

EBIT + lease payments
/ interest payments + lease payments

higher is better

27
Q

Gross profit margin

A

Gross profit / sales

Higher is better

28
Q

Operating profit margin

A

Operating profit / sales

Higher is better

29
Q

Pre tax margin

A

EBIT / sales

Higher is better

30
Q

Net profit margin

A

Net income / sales

Higher is better

31
Q

Operating ROA

A

Operating income / average total assets

Higher is better

numerator: either EBIT or NI

32
Q

ROA

A

Net income / average total assets

Higher is better

numerator: either EBIT or NI

33
Q

Return to total capital

A

EBIT / total debt + equity

Higher is better

numerator: either EBIT or NI

34
Q

ROE

A

Net income / average total equity

Higher is better

35
Q

Return on common equity

A

(Net income - pref dividends) / average common equity

Higher is better

36
Q

Debt to assets

A

total debt / total assets

higher is worse

37
Q

debt to capital

A

total debt / total debt + sh.e

higer is worse

38
Q

debt to equity

A

total debt / total sh.e

39
Q

financial leverage

A

avg total assets / avg total equity

40
Q

Interset coverage

A

EBIT / interest payments

high is good

41
Q

Fixed charge coverage

A

EBIT + lease payments / interest payments + lease payments

42
Q

In general, high debt (leverage) ratios imply ____

In general, high coverage ratios imply_____

A
  • high debt ratios imply a high level of debt, high risk, and low solvency
  • high coverage ratios are better and indicates high income relative to interest payments
43
Q

ROE and its expanded form

A

ROE = Net income / E

= ROA x Financial leverage
= (net income / assets) * (assets / equity)

44
Q

The traditional DuPont equation:

A

ROE
= net profit margin * asset turnover * leverage ratio
= (net income / sales) * (sales / assets) * (assets / equity)

= NI/S * S/T.A. * A/E

45
Q

The extended DuPont equation:

A

ROE =
tax burden * interest burden * EBIT margin * asset turnover * financial leverage

= (NI / EBT) * (EBT / EBIT) * (EBIT/S) * (S/A) * (A/E)

46
Q

Price to earnings ratio

A

P/E ratio

= price per share / earnings per share

  • a valuation measure
  • prone to earnings manipulation, non-recurring earnings may distort
47
Q

Price to cash flow

A

P / CF

price per share / cash flow per share

  • less prone to manipulation than P/E
48
Q

Price to sales

A

P/S
price per share / sales per share

  • used when net income is not positive
49
Q

Price to book value

A

Price per share / book value per share

  • a value > 1 means future rate of return is higher than the required rate of return
50
Q

Dividend ratios (3):

A
  • dividend payout ratio
  • retention rate
  • sustainable growth rate
51
Q

Dividend payout ratio

A

= dividend / earnings

  • measures the percentage of earnings a company pays out as dividends to equity shareholders
52
Q

Retention rate

A

= 1 - payout ratio

  • measures the percentage of earnings a company retains
53
Q

Sustainable growth rate

A

= retention rate * ROE

  • measures how much growth a company is able to finance from its internally generated funds.
54
Q

Credit analysis ratios (7)

A
  • EBITDA interest coverage
  • FFO (funds from operations) to debt
  • Free operating cash flow to debt
  • EBIT margin
  • EBITDA margin
  • Debt to EBITDA
  • Return on capital
55
Q

EBITDA interest coverage ratio

A

= EBITDA / Gross interest

  • a higher value implies good credit quality
56
Q

FFO to debt ratio

A

= funds from operations / total debt

  • a higher value implies good credit quality
57
Q

Free operating cash flow to debt ratio

A

= CFO - capex / total debt

  • a higher value implies good credit quality
58
Q

EBIT margin ratio

A

= EBIT / total revenue

  • a higher value implies good credit quality
59
Q

EBITDA margin

A

= EBITDA / total revenue

  • a higher value implies good credit quality
60
Q

Debt to EBITDA ratio

A

= total debt / EBITDA

  • lower implies good credit quality
61
Q

Return on capital ratio

A

= EBIT / average beginning-of-yr and end-of-yr capital

  • a higher value implies good credit quality

Financial Analysis And Reporting (12 decks)

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