Financial Ratios Flashcards
1
Q
AR TO
A
Sales / Avg. AR
2
Q
Operating leverage vs Financial leverage
A
Operating leverage - indication of how a company’s costs are structured and also is used to determine its breakeven point.
Financial leverage refers to the amount of debt used to finance the operations of a company.
3
Q
Debt ratio
A
Total liabilities/ total Asset
4
Q
WACC
A
Equity/(total E + L) times Re + Preferred stock / (total E+ L) times Rp + Debt/ (total E +L) times Rd(1-tax rate)
5
Q
Days in Sales
A
EOY AR / (Sales/365)
6
Q
Cost of discount not taken
2/10 net 30, 360 days/year
A
- Calculate # of times the discount-foregone period occurs in a year. 360/ (30-10) = 18
- Compute the effective interest rate associated with discount foregone. 0.02/(100%-2%)
- Annualize by multiplying the effective rate by the number of times (1 times 2)
7
Q
Constant growth
A
P = D1 / (r-g)
Where =
r = cost of capital
g = growth rate
8
Q
Times interest earned
A
EBIT ÷ Interest expense
9
Q
P/E ratio
A
Price of stock (now) / Earning per share expected (at 1 period later)
