Financial Ratios - Uses

Question 1

Current Ratio

Answer 1

Have enough cash?

Question 2

Quick Ratio (Acid-Test)

Answer 2

Have enough real cash?

Question 3

Cash Ratio

Answer 3

Really have enough real cash?

Question 4

Total Debt Ratio

Answer 4

How much debt is in your capital structure?

$ times debt for every $ in assets

Question 5

Debt-to-Equity Ratio

Answer 5

Another way to compare Total Debt Ratio

Question 6

Equity Multiplier

Answer 6

Another way to compare Total Debt Ratio from an equity standpoint

Question 7

Times Interest Earned

Answer 7

How well are interest obligations covered?

Question 8

Cash Coverage

Answer 8

How well are interest obligations covered on a cash basis?

Question 9

Inventory Turnover

Answer 9

Inventory management efficiency

higher = more efficient

Question 10

Days’ Sales in Inventory

Answer 10

How many days for inventory to be sold

Question 11

Receivables Turnover

Answer 11

Receivables management efficiency

Question 12

Days’ Sales in Receivables

Answer 12

How long does it take to get the cash?

More meaningful

Question 13

Total Asset Turnover

Answer 13

Every $ in assets, we generated $ times in sales

Question 14

Profit Margin

Answer 14

Profit for every $ earned

Question 15

Operating Margin

Answer 15

Profit before interest & taxes

Question 16

Return on Assets (ROA)

Answer 16

Profit for every $ of assets

Question 17

Return on Equity (ROE)

Answer 17

Performance to shareholders

Question 18

Earnings per Share (EPS)

Answer 18

1 share of stock earned you $ times of value

Question 19

Price-Earnings Ratio (PE)

Answer 19

Stock price is X times the earnings

Also referred to as the PE multiple

Question 20

Price-Sales Ratio

Answer 20

Same as PE but uses sales (not as common)

Question 21

Market-to-Book Ratio

Answer 21

Loosely compares market value of investments to historical cost