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CFA L1 > Financial ratios > Flashcards

Financial ratios Flashcards

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CFA flashcards
1
Q

Inventory turnover

A

Activity ratio. Activity ratios measure efficiency

Inventory turnover = COGS/Avg Inventory

Avg = (beg. + end)/2

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2
Q

Days of Inventory on Hand (DOH)

A

DOH = 365/Inventory Turnover

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3
Q

Receivables Turnover

A

Activity ratio

Receivables turnover = Revenue/Avg A/R

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4
Q

Days of Sales Outstanding

A

Days of sales outstanding = 365/Receivables turnover

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5
Q

Payables turnover

A

Activity ratio

Payables turnover = Purchases/Avg A/P

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6
Q

Number of Days of Payable

A

Number of Days of Payable = 365/Payables turnover

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7
Q

Working capital turnover

A

Activity ratio

Working capital turnover = Revenue/Avg Working capital

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8
Q

Fixed Asset Turnover

A

Activity ratio

Fixed asset turnover = Revenue/avg net fixed assets

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9
Q

Total asset turnover

A

Activity ratio

Total asset turnover = revenue/avg total assets

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10
Q

Current ratio

A

Liquidity ratio. Liquidity measures our ability to pay our short-term obligations

Current ratio = current assets/current liabilities

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11
Q

Quick ratio

A

Liquidity ratio

Quick ratio = (Cash + short term marketable securities + A/R)/current liabilities

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12
Q

Cash ratio

A

Liquidity ratio

Cash ratio = (Cash + short-term marketable securities)/current liabilities

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13
Q

Defensive Internal ratio

A

Liquidity ratio

Defensive internal ratio = (Cash + short term marketable securities + A/R)/daily cash expenses

The defensive interval ratio (DIR) is a liquidity ratio that indicates how many days a company can operate without needing to tap into capital sources other than its current assets.

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14
Q

Cash conversion cycle

A

Liquidity

Cash conversion cycle = Days of Inventory on Hand (DOH) + Days of Sales outstanding - # of Days of Payables

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15
Q

Operating leverage

A

The use of fixed costs in the business

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16
Q

Financial leverage

A

The use of debt in the capital structure

17
Q

Debt to assets ratio

A

Solvency ratio. Solvency measures our ability to pay our long-term obligations

Debt to assets = Total debt/total assets

18
Q

Debt-to-capital

A

Solvency ratio

Total debt/(Total debt + total equity)

19
Q

Debt-to-equity

A

Solvency ratio

Debt-to-equity = Total Debt/Total equity

20
Q

Financial leverage ratio

A

Solvency ratio

Financial leverage ratio = Avg total assets/avg total equity

21
Q

Interest coverage ratio

A

Solvency ratio

Interest coverage ratio = EBIT/Interest expense

The interest coverage ratio tells us how easily a firm can pay its interest expenses on outstanding debt

22
Q

Fixed charge coverage ratio

A

Solvency ratio

Fixed charge coverage ratio = (EBIT + lease payments)/(Interest expense + lease payments)

The fixed-charge coverage ratio measures a firm’s ability to cover its fixed charges (e.g. debt payments, interest expense and lease payments). It shows how well a company’s earnings can cover its fixed expenses

23
Q

Gross profit margin

A

Profitability ratio

Gross profit margin = Gross profit/revenue

Gross profit margin is one of the return on sales ratios

24
Q

Operating profit margin

A

Profitability ratio. Operating profit margin is also another return on sales ratio

Operating profit margin = operating profit (EBIT)/revenue

25
Q

Pretax margin

A

Profitability ratio. Pretax margin is another return on sales ratio

Pretax margin = EBT/revenue

26
Q

Net profit margin

A

Profitability ratio. Net profit margin is another return on sales ratio

Net profit margin = Net Income/Revenue

27
Q

Operating return on assets

A

Profitability ratio. Operating return on assets is one of the return on investments ratios

Operating return on asset = EBIT/avg total assets

28
Q

Return on assets

A

Profitability ratio. ROA is one of the return on investments ratios

ROA = net income/avg total assets

29
Q

return on equity

A

Profitability ratio. ROE is one of the return on investments ratio

ROE = net income/avg shareholder equity

30
Q

Dupont analysis on return on equity

A

Dupont analysis allows investors to look at different components of ROE and compare operational efficiency

ROE = NI/avg shareholders equity

= (NI/Avg total assets) x (Avg total assets/avg shareholders equity)
[ROA x leverage]

= (NI/revenue) x (rev/total assets) x (avg total assets/avg shareholders equity)
[net profit margin x total asset turnover x leverage]

= (NI/EBT) x (EBT/EBIT) x (EBIT/Rev) x (Rev/Avg Total assets) x (Avg total assets/avg shareholders equity)

[tax burden x interest burden x EBIT margin x total asset margin x leverage)

CFA L1 (23 decks)

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