Financial Reporting & Analysis

Question 1

Current Ratio

Answer 1

Current Assets ÷ Current Liabilities

Question 2

Quick Ratio

Answer 2

(Cash + Short-term marketable investments + Receivables) ÷ Current liabilities

Question 3

Cash Ratio

Answer 3

(Cash + ST marketable investments) ÷ Current liabilities

Question 4

Defensive Interval Ratio

Answer 4

(Cash + ST marketable investments + Receivables) ÷ Daily cash expenditures

Question 5

Days of Sales Outstanding (DSO)

Answer 5

of days in period ÷ receivables turnover ratio

Question 6

Inventory Turnover Ratio

Answer 6

COGS ÷ Avg. Inventory

Question 7

Days of Inventory on Hand (DOH)

Answer 7

of days in period ÷ inventory turnover ratio

Question 8

Payables Turnover Ratio

Answer 8

Purchase ÷ Avg. trade payables

Question 9

Number of Days of Payables

Answer 9

of days in period ÷ payables turnover ratio

Question 10

Receivables Turnover Ratio

Answer 10

Total revenue ÷ Avg. receivables

Question 11

Cash Conversion Cycle (Net Operating Cycle)

Answer 11

DOH + DSO - # of days of payables ratio

Question 12

Working Capital Turnover

Answer 12

Total revenue ÷ Avg. working capital

Question 13

Fixed Asset Turnover

Answer 13

Total revenue ÷ Avg. net fixed assets

Question 14

Total Asset Turnover

Answer 14

Total revenue ÷ Avg. total assets

Question 15

Operating Return on Assets

Answer 15

Operating Income ÷ Avg. total assets

Question 16

Return on Assets (ROA)

Answer 16

Net Income ÷ Avg. total assets

Question 17

Return on Equity (ROE)

Answer 17

Net Income ÷ Avg. shareholders’ equity

Question 18

Return on Total Capital

Answer 18

Earnings before interest & taxes ÷ (Interest-bearing debt + Shareholders’ equity)

Question 19

Return on Common Equity

Answer 19

(Net Income - Preferred dividends) ÷ Avg. common shareholders’ equity

Question 20

Tax Burden

Answer 20

Net Income ÷ Earnings before taxes

Question 21

Interest Burden

Answer 21

Earnings before taxes ÷ Earnings before interest & taxes

Question 22

Financial Leverage Ratio (Equity Multiplier)

Answer 22

Avg. total assets ÷ Avg. shareholders’ equity

Question 23

Total Debt

Answer 23

Total of interest-bearing short-term and long-term debt, excluding liabilities such as accrued expenses & accounts payable

Question 24

Debt-to-Assets Ratio

Answer 24

Total Debt ÷ Total Assets

Question 25

Debt-to-Equity Ratio

Answer 25

Total Debt ÷ Total shareholders’ equity

Question 26

Interest Coverage Ratio

Answer 26

EBIT ÷ Interest Payments

Question 27

Fixed Charge Coverage Ratio

Answer 27

(EBIT + Lease payments) ÷ (Interest payments + Lease payments)

Question 28

Dividend Payout Ratio

Answer 28

Common share dividends ÷ Net Income attributable to common shares

Question 29

Retention Rate

Answer 29

(Net income attributable to common shares - Common share dividends) ÷ Net income attributable to common shares 1 - Payout ratio

Question 30

Sustainable Growth Rate

Answer 30

Retention Rate * ROE

Question 31

Book Value per Share

Answer 31

Common stockholders’ equity ÷ Total number of common shares outstanding

Question 32

Free Cash Flow to Equity (FCFE)

Answer 32

Cash flow from operations - Investment in fixed capital + Net borrowing

Question 33

Free Cash Flow to the Firm (FCFF)

Answer 33

Cash flow from operations + Interest expense * (1 - Tax rate) - Investment in fixed capital **Interest should only be added back if it was subtracted in determining CF from operations. This may not be case for companies electing an alternative treatment under IFRS.