Financial Ratios Flashcards
Book Value per Common Share
Common Equity / Common Shares Outstanding
Payout Ratio to Common Shareholders
Total Common Dividends Paid / Net Income Available to Common Shareholders
Return on Common Equity
Net Income - Preferred Dividends / Avg. Common Equity
Avg. Common Equity = Common Equity + Retained Earnings
Category: Profitability
In computing inventory turnover, why is the cost of sales the preferred base?
Cost of sales eliminates changes in sale prices and cannot be manipulated by management
Inventory turnover (ratio)?
COGS / Avg. Inventory
Category: Efficiency or Asset utilization
Return on Common Equity
Net Income / Avg. Common Equity
Category: Profitability
Common Equity
Common Stock (Par) + Common APIC + Retained Earnings
Sustainable Equity Growth Rate
Return on Equity x (1 - Dividend Payout Ratio)
The rate at which the company can grow while using its own internal revenue without borrowing from outside sources.
Quick ratio
Cash + Cash Equivalents + ST Marketable Securities / Current Liabilities
Category: Liquidity
Current ratio
Current assets / Current liabilities
Category: Liquidity
Debt ratio
Total Liabilities / Total assets
Category: Solvency
Time interest earned
Net income + taxes + interest expense / Interest expense
Category: Solvency
Return on Equity
Net income / Avg. Total Equity
Category: Profitability
Operating cash flow margin
Cash flows from operations / Ending current liabilities
Category: Cash Flows
Profit margin
Net income / Sales
Category: Profitability
A/R Turnover
Credit sales / Avg. A/R
Category: Efficiency / Asset Utilization
Inventory turnover
COGS / Avg. Inventory
Cateogory: Efficiency / Asset Utilization
Basic EPS
Net income - Preferred Dividends / WACSO
Category: Market
Diluted EPS
Net income + Interest savings / WACSO + Converted shares
Note: if preferred shares are coverted to common, there will be on preferred dividends
Note: interest savings is the interest expense saved (less taxes) after bonds are converted
Category: Market
Debt to Equity
Total Liabilities / Total Equity
Category - Solvency
Days Sales in A/R
365 / A/R Turnover
Cateogry: Efficiency / Asset Utilization
Economic profit
Revenue - Actual Costs - Cost of Capital
Cost of capital
The return a company needs to acheive to justify the cost of a capital project
Accounting profit will usually be ______________economic profit (equal to, greater than, less than, less objective than)
Accounting profit will usually be greater than economic profit as accounting profit does not include cost of capital
Accounting profit
Revenues - costs
What do liquidity ratios measure?
Assess a company’s ability to meet its short term obligations (current ratio, quick ratio)
What do solvency ratios measure?
Assess a company’s ability to meet its long term obligations (debt to equity, times interest earned)
What do profitability ratios measure?
Evaluate a company’s ability to generate earnings realtive to its revenue, operating costs, and shareholders’ equity
What do efficiency ratios measure?
Indicate how well a company utilizes its assets and liabilities internally
What do market value ratios measure?
Provide insights to the stock market’s valuation of the company
What do cash flow ratios measure?
Utilize the cash flow statement to assess a company’s cash flow health
