Financial Ratios Flashcards
Working Capital
= Current Assets - Current Liabilities
*Higher Ratio, Less Risk
Current Ratio
Working Capital Ratio
= Current Assets / Current Liabilities
*Higher Ratio, Less Risk
Acid-Test Ratio
= (Cash + Cash Equivalents + Marketable Securities + Net Receivable)
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Current Liabilities
*When ratio decreases, deteriorating Risk Increases
Cash Ratio
= (Cash + Cash Equivalents + Marketable Securities)
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Current Liabilities
*Most Liquid
Accounts Receivable Turnover
= Net Credit Sales
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Average Net Receivables
*The Higher, no problem collecting
Accounts Receivable Turnover in Days
= 365 Days
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Accounts Receivable Turnover
*The Lower, the better
Inventory Turnover
= Cost of Good Sold
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Average Inventory
*The Higher, the better the performance
Inventory Turnover in Days
= 365 Days
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Inventory Turnover
- # days to sell to high - slow moving
- # days to sell to low - giving it away
Operating Cycle
= AR Turnover in Days + Inventory Turnover in Days
Working Capital Turnover
= Sales
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Average Working Capital
*The higher, the better
Total Asset Turnover
= Net Sales
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Average Total Assets
*High Ratio - effective asset to generate sales
Ratio >= Standard
Net Profit Margin
= Net Income
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Net Sales
*Percentage >= Standard
Return on Total Assets
= Net Income
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Average Total Assets
*Percentage >= Standard
DuPont Return on Assets
= Net Profit Margin x Total Asset Turnover
*Percentage >= Standard
Return on Common Equity
= Net Income - Preferred Dividends
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Average Common Equity
*Percentage >= Required Rate
