Financial Ratios Flashcards
Current Ratio
Current assets/current liabilities
Quick Ratio
Current assets-inventory-prepaids/current liabilities (Current assets includes Cash, Marketable Securities and Accounts Receivable, Allowable)
What is the denominator in any ratios that ends with the word margin?
Sales/Revenue
Gross Profit Margin
Sales-COGS/Sales
Net Profit Margin
Net Income/Sales
Operating Profit Margin
Operating Profit/Sales
For ratios that start with return on what is the numerator
Net Income
Return on Assets a.k.a Dupont
Net Income/Average total Assets
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
Net Income - Preferred Dividends/average common equity
What is the denominator in turnover ratios?
The denominator is the average of the name of the ratio
Accounts receivable turnover
net sales/average accoutns receivable
Inventory Turnover
COGS/inventory
accounts payable turnover
purchases/ average accounts payable
total assets turnover
sales/avareage total assets
total fixed assets turnover
sales/average fixed assets
What is the denominator in turnover ratios that starts with words days?
the dominator is turnover w/ the name in the ratio
Days inventory on hand
365 days/inventory turnover
days accounts receivable on hand
365/accounts receivable turnover
In solvency ratios you change “to”: to what
divided by
debt to assets a.k.a debt ratio
total liabilities/total assets
price to earnings
market price per share/earnings per share
Earnings per share
Net income - the current preferred dividend/weighted average of the common shares outstanding
Times interest earned
earnings before interest and taxes/interest
How do you calculate eequity
Capital stock + retained earnings
How do you calculate liabilities
assets -equity
Working Capital
Current Assets - Current liabilities
Time interest earns measures the company’s ability to
cover interest charges. The greater the ability the less the risk of bankruptcy
Total Asset Trnover
Net Sales/Average Total Assets
Average total assests
net sales/total asset turnover
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
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
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
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
