Financial Ratios Flashcards
Profit Margin
Net Income/Sales
20% is good.
Return on Total Assets
Net Income/Total Assets
Exceed interest rate is good.
Return on Specific Assets
Net Income/Specific Assets
Maintain same ratio if adding assets.
Return on Owner’s Equity
Net Income/Owner’s Equity
Higher than Return on Total Assets is good.
Current Ratio
Current Assets/Current Liabilities Factor of 2 or more.
Debt Ratio
Total Debt (all creditors)/Total Assets OR Interest-Bearing Debt/Total Assets Lower is good.
Debt Coverage
Profit on Ordinary Activities before Taxes + Interest Charges/Interest Charges
More than 100% is good.
Dividend Cover
Net Income/Dividend Payable
More than 100% is good.
Fixed to Current Assets
Fixed Assets/Current Assets
Fixed Assets Turnover
Sales/Fixed Assets
Higher indicates better, but should be investigated.
Collection Ratio
Accounts Receivable/Total Brokerage Billed Premiums x 365 days
Should meet accounts receivable policy. Over 30 is bad.
Cost Per Account
Total Costs/Number of Accounts
Should be higher than commission earned on account.
Office Costs Per Account
Office Costs/Number of Accounts
Sales Costs Per Account
Sales Costs/Number of Accounts
Commission Per Clerical Employee
Total Property & Casualty Commissions/Number of Clerical Employees
