FINANCIAL RATIOS Flashcards
FS RATIOS
Ananlysis the dev of quatitative relations betw various elements for the entity FS
ratios
enables comparison and facilitate the analisys of weakness and strengths of a firm ,
namer of ratios
usually indicate the nature oof the quantitative analisys needed. exp
Debt Equity ratio= total debt(liabilities/OE
major purposesor types of measures being analyzed are
1 Liquidity/solvency
- Operational activity
- Profitability
- Equity/invt leverage
ROA
ROA= NET INCOME/AVG TOTAL ASSETS
RETURNS ON ASSETs measures opert perfomance independing of financing
ROE
ROE=NET INCOME/AVG SHAREHOLDERS EQUITY
Return on equity, includes the amount and cost of financing
Ratio Categories
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
1.- WORKING CAPITAL/Current ratio
liquid ratio
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
WCR analysis
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
Test Acid ratio: Cash +AR+Marketable Securities/CL
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
times Interest earned= Int exp+Inc tax Exp/Tax Exp
measures the ability of current earnings to cover interest costs of the period
OPERATIONAL RATIOS:
Measures the efficiency of the operation activities
A/R TURNOVER=(Net)credit sales/Average AR(beg-end/2)
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
INVENTORY TURNOVER=COGS/AVG INV(beg+end/2)
Measures the # of days inventory is sold or used
profitability
measures operational results
Equity
measures return on equity and degree of equity financig
PROFIT MARGIN= NI/Net sales
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
Return on Assets=(Net Income+(add back) Interest Expense(net of tax effect)/ Avg total Assets
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
Return on common Stockholders’ Equity=
(NI-Preffered Dividend (oblig x the period only)/ Avg common stockhd equity
Measures the rate of earnings on common shareholder’s; investment.
(EPS) EARNINGS PER SHARE= (NI-Preferred Div (oblg x period only)/Weighted avg number of Shares Outstanding
Measures NI per share of common stock
Price earnings (PE)ratio=Market price for a common share/Earnings per common share (EPS)
measures the price of stock relative to its earnings, indicates how the market values the stock
DEBT EQUITY OR LAVERAGE RATIOS
provide measures of relative sources of equity and equity value
Debt Equity ratio
total L/Shareholders equity
Owners’ Equity Ratio
Shareholders’ Equity/total Assets
Debt ratio= total Liabilities/ Total Assets
total Liabilites/ Total assets
Book value per common stock
Common Shareholders Equity/Number of Outstanding Common Shares
Book value per Preferred Share
Preferred shareholders’ Equity(including dividends in arrears stock/Number of Outstanding Preferred stocks
Common stock yield formula=Dividend per comm share/Makt price per Cmm share
measures the rate of return per share of cmm stk
proftbl ratio
Common stock dividends payout ratio
Total basis=Cash dividends to common shareholders/ NI to Common shareholders
(proftbl ratio)
Per share basis=Cash dividends per common share /Earnings per Common Share
Measures the % or earnings distrb to comm sharehold
proftbl ratio
