Financial Ratios

Question 1

What is the formula for Asset Turnover Ratio?

Answer 1

Asset turnover ratio = Net sales / Average total assets

Question 2

What is the formula for Profit Margin Ratio?

Answer 2

Profit margin ratio = Net income / Total sales

Question 3

What is the formula for Rate of Return on Assets?

Answer 3

Rate of return on assets = (Net Income/Net Sales) x (Net Sales/Average total assets)

Question 4

What is the formula for Current Ratio?

Answer 4

Current ratio = Current assets / Current liabilities

Question 5

What is the formula for Acid-Test Ratio?

Answer 5

Acid-test ratio = (Cash + Short-term investments + Net receivables) / Current liabilities

Question 6

What is the formula for Rate of Return on Common Stock Equity?

Answer 6

Rate of Return on Common Stock Equity = (Net income - Preferred dividends) / Average common stockholders’ equity

Question 7

What is the formula for Payout Ratio?

Answer 7

Payout Ratio = Cash dividends / (Net income - Preferred dividends)

Question 8

What is the formula for Book Value Per Share?

Answer 8

Book Value Per Share = Common stockholder’s equity / Outstanding shares

Question 9

What is the formula for Debt to Assets Ratio?

Answer 9

Debt to Assets Ratio = Total Liabilities / Total Assets

Question 10

How is Income Tax Expense related to Interest Expense?

Answer 10

Income Tax Expense / Interest Expense

Question 11

What is the formula for Times Interest Earned Ratio?

Answer 11

Times Interest Earned Ratio = (Net Income + Interest Expense + Income Tax Expense) /Interest Expense