Financial Ratios

Question 1

Explain how common size statements are created

Answer 1

Income statement = IS Acct / Sales

Balance Sheet = BS Acct / Assets

Horizontal Common Size Statement

Year / Base year value

Question 2

Explain Du Pont

Answer 2

ROE

NI / Revenue x Assets / Equity

NI / Revenue x Revenue / Assets x Assets / Equity

Question 3

Calculate Operating Profit Margin

Answer 3

EBIT / Net Sales

Question 4

When should you report segment data

Answer 4

For portions of a company that are distinguishable by their risk and return characteristics (IFRS) must report segment if more than 10% of revenue / Assets

Question 5

Fully explain the cash conversion cycle from start to finish

Answer 5

Days inventory on hand
Inventory Turnover: COGS / Average Inventory

Days Sales outstanding
Receivables Turnover Sales / Average Receivables

Days of payables
Payables Turnover Purchases / Average Payables

Cash Conversion Cycle = DOH + DSO - DOP

:)

Question 6

Calculate the Dividend Payout Ratio

Answer 6

Common Dividend / (NI - Pref Dividend aka NI avaliable to common)

Question 7

Calculate Retention Rate

Answer 7

1 - Dividend Payout ratio

Question 8

Calculate the sustainable growth rate

Answer 8

Retention Rate x ROE

Question 9

Calculate interest margin

Answer 9

interest income / interest earing assets