FINANCIAL RATIOS

Question 1

FS RATIOS

Answer 1

Ananlysis the dev of quatitative relations betw various elements for the entity FS

Question 2

ratios

Answer 2

enables comparison and facilitate the analisys of weakness and strengths of a firm ,

Question 3

namer of ratios

Answer 3

usually indicate the nature oof the quantitative analisys needed. exp
Debt Equity ratio= total debt(liabilities/OE

Question 4

major purposesor types of measures being analyzed are

Answer 4

1 Liquidity/solvency

2. • Operational activity
3. • Profitability
4. • Equity/invt leverage

Question 5

ROA

Answer 5

ROA= NET INCOME/AVG TOTAL ASSETS

RETURNS ON ASSETs measures opert perfomance independing of financing

Question 6

ROE

Answer 6

ROE=NET INCOME/AVG SHAREHOLDERS EQUITY

Return on equity, includes the amount and cost of financing

Question 7

Ratio Categories

Answer 7

LIQUID OR SOLVENCY RATIOS, measured the ablility to meet maturing obligations as they become due. (quantitavite)
OPERATIONAL.- Measures the ability to meet maturing obligations
PROFITABILITY.- measured operational results
EQUITY.- Measures sources of equity

Question 8

1.- WORKING CAPITAL/Current ratio

liquid ratio

Answer 8

1- measures the extent to which CA exceed CL as it is express:I
WC=CA-CL
WORKING CAPITAL RATIO or CURRENT RATIO=CA/CL
If positive, then there are more CA than CL (CR>1)
if negative then there are more CL than CA (CR<1)I

Question 9

WCR analysis

Answer 9

IF WCR =1 – = > or =< in CA and L will not ^the WCR
If WCR Exceed 1: = > in CA&L will decrease the WCR
DI =< in CA&L will Increase the WCR
if WCR is less than 1: = > in CA&L will increase the WCR
ID =< in CA&L will decrease the WCR

Question 10

Test Acid ratio: Cash +AR+Marketable Securities/CL

Answer 10

uses the most liquid Asset to measure the ability to meet maturing obligations. will always be less than the curren ratio because the numerator ecludes CA

Question 11

times Interest earned= Int exp+Inc tax Exp/Tax Exp

Answer 11

measures the ability of current earnings to cover interest costs of the period

Question 12

OPERATIONAL RATIOS:

Answer 12

Measures the efficiency of the operation activities

Question 13

A/R TURNOVER=(Net)credit sales/Average AR(beg-end/2)

Answer 13

Average AR must be value at NRV- therefore allowance for doubtfull accounts must be taking is consideration
measured number of days required to collect AR
365/AR turover

Question 14

INVENTORY TURNOVER=COGS/AVG INV(beg+end/2)

Answer 14

Measures the # of days inventory is sold or used

Question 15

profitability

Answer 15

measures operational results

Question 16

Equity

Answer 16

measures return on equity and degree of equity financig

Question 17

PROFIT MARGIN= NI/Net sales

Answer 17

measures profitability on sales exp: 100/1000-10%

There is a 10% net profit on sales or for every dollar of sales there is 10cents of net profit

Question 18

Return on Assets=(Net Income+(add back) Interest Expense(net of tax effect)/ Avg total Assets

Answer 18

Measures the rate of returns on total assets, and how effectively total assets generate NI
Exp 100/{(3000+3500)/2}=3.08%
There is a 3.08% return on assets or for every $ of assets, 3 cents of NI is produced

Question 19

Return on common Stockholders’ Equity=

(NI-Preffered Dividend (oblig x the period only)/ Avg common stockhd equity

Answer 19

Measures the rate of earnings on common shareholder’s; investment.

Question 20

(EPS) EARNINGS PER SHARE= (NI-Preferred Div (oblg x period only)/Weighted avg number of Shares Outstanding

Answer 20

Measures NI per share of common stock

Question 21

Price earnings (PE)ratio=Market price for a common share/Earnings per common share (EPS)

Answer 21

measures the price of stock relative to its earnings, indicates how the market values the stock

Question 22

DEBT EQUITY OR LAVERAGE RATIOS

Answer 22

provide measures of relative sources of equity and equity value

Question 23

Debt Equity ratio

Answer 23

total L/Shareholders equity

Question 24

Owners’ Equity Ratio

Answer 24

Shareholders’ Equity/total Assets

Question 25

Debt ratio= total Liabilities/ Total Assets

Answer 25

total Liabilites/ Total assets

Question 26

Book value per common stock

Answer 26

Common Shareholders Equity/Number of Outstanding Common Shares

Question 27

Book value per Preferred Share

Answer 27

Preferred shareholders’ Equity(including dividends in arrears stock/Number of Outstanding Preferred stocks

Question 28

Common stock yield formula=Dividend per comm share/Makt price per Cmm share

Answer 28

measures the rate of return per share of cmm stk

proftbl ratio

Question 29

Common stock dividends payout ratio

Total basis=Cash dividends to common shareholders/ NI to Common shareholders

Answer 29

(proftbl ratio)

Question 30

Per share basis=Cash dividends per common share /Earnings per Common Share

Answer 30

Measures the % or earnings distrb to comm sharehold

proftbl ratio