Financial Ratios Flashcards
Liquidity: Current Ratio
Purpose - give indication of ability to meet current obligations
Calculations: Current Assets/Current Liabilities
Liquidity: Quick or Acid Test Ratio
Purpose: more emphasis on liquid assets that can be quickly converted into cash (take out inventory)
Calculations: CA - Inventory/CL
Debt/Coverage: Debt-to-Total Assets (Debt Ratio)
Purpose: all debts provided by lender to finance all assets
Calculation: Total Liabilities/CA
Debt/Coverage: Times-Interest-Earned
Purpose: debt-paying ability
Calculation: Profit before tax + Finance costs / Finance costs
Debt/Coverage: Fixed-Charges Coverage
Purpose: includes all fixed charges - capacity to service the finance costs
Calculation: P.B.T + Finance costs + Lease Payments / Finance costs + Lease Payments
Asset Management: Average Collection Period
Purpose: Measure how many days to collect payments
Calculations:
Average sales per day = Rev/365
Average collection period = Trade Receivables/Average sales per day
Asset Management: Inventory Turnover
Purpose: how long to move inventory
Calculation: Cost of Sales / Average inventories
Asset Management: Capital Assets Turnover
Purpose: how ‘well’ Non-CA (PPE) are working
Calculation: Rev/non-CA
Asset Management: Total Assets Turnover
Purpose: how ‘well’ CA and non-CA are used to generate REV
Calculation: Rev/total Assets
Profitability: Profit Margin on Revenue
Purpose: shows efficiency of business
Calculation: Operating profit/Rev
Profitability: Return on Total Assets
Purpose: return on funds invested (lender and owner)
Calculation: Profit for year/total assets
Profitability: Return on Equity
Purpose: shows how profitable business is to owner
Calculation: Profit for year / Equity
Market-Value Ratios
Earning per share (in $) = net profit after taxes/number of shares
Price/Earning ratio (in # times)(share greater then earning) = price per common share/earning per common share
