Financial Ratios (FINALS) Flashcards
The extent to which a firm can meet its short-term obligations
Current Assets/Current Liabilities
Current Ratio
The extent to which a firm can meet its short-term obligations without relying upon the sale of its inventories
Currents Assets minus Inventory/Current Liabilities
Quick Ratio
The percentage of total funds that are provided by creditors
Total Debt/Total Assets
Debt-to-Total-Assets Ratio
The percentage of total funds provided by creditors versus by owners
Total Debt/Total Stockholders’ Equity
Debt-to-Equity Ratio
The balance between debt and equity in a firm’s long-term capital structure
Long-term Debt/Total Stockholders’ Equity
Long-Term Debt-to-Equity Ratio
The extent to which earnings can decline without the firm becoming unable to meet its annual interest costs
Profits Before Interest and Taxes/Total Interest Charges
Times-Interest-Earned Ratio
Whether a firm holds excessive stocks of inventories and whether a firm is slowly selling its inventories compared to the industry average
Sales/Inventory of Finished Goods
Inventory Turnover
Sales productivity and plant and equipment utilization
Sales/Fixed Assets
Fixed Assets Turnover
Whether a firm is generating a sufficient volume of business for the size of its asset investment
Sales/Total Assets
Total Assets Turnover
The average length of time it takes a firm to collect credit sales (in percentage terms)
Annual Credit Sales/Accounts Receivable
Accounts Receivable Turnover
The average length of time it takes a firm to collect on credit sales (in days)
Accounts Receivable/Total Credit Sales/365 days
Average Collection Period
The total margin available to cover operating expenses and yield a profit
Sales minus COGS/Sales
Gross Profit Margin
Profitability without concern for taxes and interest
Earnings Before Interest and Taxes (EBIT)/Sales
Operating Profit Margin
After-tax profits per dollar of sales
Net Income/Sales
Net Profit Margin
After-tax profits per dollar of assets; this ratio is also called return on investment (ROI)
Net Income/Total Assets
Return on Total Assets (ROA)
After-tax profits per dollar of stockholders’ investment in the firm
Net Income/Total Stockholders’ Equity
Return on Stockholders’ Equity (ROE)
Earnings available to the owners of common stock
Net Income/Number of Shares of Common Stock Outstanding
Earnings Per Share (EPS)
Attractiveness of firm on equity markets
Market Price Per Share/Earnings Per Share
Price-Earnings Ratio
Annual percentage growth in total sales
Firm’s growth rate in sales
Sales
Annual percentage growth in profits
Firm’s growth rate in profits
Net Income
Annual percentage growth in EPS
Firm’s growth rate in EPS
Earnings Per Share
Annual percentage growth in dividends per share
Firm’s growth rate in dividends per share
Dividends Per Share
measure the firm’s ability to maintain its economic position in the growth of the economy and industry.
Growth Ratios
must go beyond the actual calculation and interpretation of ratios.
Financial Ratio Analysis
