Financial Ratios

Question 1

Current Ratio

Answer 1

Current assets/current liabilities

Question 2

Quick Ratio

Answer 2

Current assets-inventory-prepaids/current liabilities (Current assets includes Cash, Marketable Securities and Accounts Receivable, Allowable)

Question 3

What is the denominator in any ratios that ends with the word margin?

Answer 3

Sales/Revenue

Question 4

Gross Profit Margin

Answer 4

Sales-COGS/Sales

Question 5

Net Profit Margin

Answer 5

Net Income/Sales

Question 6

Operating Profit Margin

Answer 6

Operating Profit/Sales

Question 7

For ratios that start with return on what is the numerator

Answer 7

Net Income

Question 8

Return on Assets a.k.a Dupont

Answer 8

Net Income/Average total Assets

Question 9

Return on Equity a.k.a. common equity even though it has return on in the name it includes more than just net income in the numerator

Answer 9

Net Income - Preferred Dividends/average common equity

Question 10

What is the denominator in turnover ratios?

Answer 10

The denominator is the average of the name of the ratio

Question 11

Accounts receivable turnover

Answer 11

net sales/average accoutns receivable

Question 12

Inventory Turnover

Answer 12

COGS/inventory

Question 13

accounts payable turnover

Answer 13

purchases/ average accounts payable

Question 14

total assets turnover

Answer 14

sales/avareage total assets

Question 15

total fixed assets turnover

Answer 15

sales/average fixed assets

Question 16

What is the denominator in turnover ratios that starts with words days?

Answer 16

the dominator is turnover w/ the name in the ratio

Question 17

Days inventory on hand

Answer 17

365 days/inventory turnover

Question 18

days accounts receivable on hand

Answer 18

365/accounts receivable turnover

Question 19

In solvency ratios you change “to”: to what

Answer 19

divided by

Question 20

debt to assets a.k.a debt ratio

Answer 20

total liabilities/total assets

Question 21

price to earnings

Answer 21

market price per share/earnings per share

Question 22

Earnings per share

Answer 22

Net income - the current preferred dividend/weighted average of the common shares outstanding

Question 23

Times interest earned

Answer 23

earnings before interest and taxes/interest

Question 24

How do you calculate eequity

Answer 24

Capital stock + retained earnings

Question 25

How do you calculate liabilities

Answer 25

assets -equity

Question 26

Working Capital

Answer 26

Current Assets - Current liabilities

Question 27

Time interest earns measures the company’s ability to

Answer 27

cover interest charges. The greater the ability the less the risk of bankruptcy

Question 28

Total Asset Trnover

Answer 28

Net Sales/Average Total Assets

Question 29

Average total assests

Answer 29

net sales/total asset turnover

Question 30

If on the exam the questions asks how would the account be increased or decreased if the ratio is 1:1 and the ratio increased. So there was a increase in cash and increase in accounts payable what happens

Answer 30

the increase in a 1:1 ratio will cause an increase in the ratio percentage. For example if it was 2:2 and increase 3:2 increases the overall percentage

Question 31

If on the exam the questions asks how would the account be increased or decreased if the ratio is 1:1 and the ratio decreased. So there was a decrease in cash and increase in accounts payable what happens

Answer 31

the decrease in a 1:1 ratio will cause an decrease in the ratio percentage. For example if it was 2:3 and decreased 1:2 that goes from .67 to .50