financial reports

Question 1

receivables turnover ratio

Answer 1

net credit sales / accounts receivable (avg)

Question 2

average collection period

Answer 2

365 days / receivables turnover ratio

Question 3

inventory turnover ratio

Answer 3

cost of goods sold / inventory (avg)

Question 4

average days in inventory

Answer 4

365 days / inventory turnover ratio

Question 5

current ratio

Answer 5

current assets / current liabilities

Question 6

acid-test ratio (quick ratio)

Answer 6

cash + current investments + accounts receivable / current liabilities

Question 7

debt to equity ratio

Answer 7

total liabilities / stockholders’ equity

Question 8

times interest earned ratio (interest coverage ratio)

Answer 8

net income + interest expense + tax expense / interest expense

Question 9

gross profit ratio

Answer 9

gross profit / net sales

Question 10

profit margin

Answer 10

net income / net sales

Question 11

asset turnover ratio

Answer 11

net sales / total assets (avg)

Question 12

return on assets (ROA)

Answer 12

net income / total assets (avg)

Question 13

return on equity (ROE)

Answer 13

net income / stockholders’ equity (avg)

Question 14

earnings per share (EPS)

Answer 14

net income available to common stockholders / number of common shares outstanding (avg)

Question 15

price-to-earnings ratio (PER)

Answer 15

stock price / earnings per share

Question 16

ROA components

Answer 16

ROA = profit margin x asset turnover

Question 17

cash ROA components

Answer 17

cash ROA = operating cash flow / total assets (avg) = cash flow to sales x asset turnover ratio = operating cash flow / net sales x net sales / total assets (avg)

Question 18

ROE components

Answer 18

ROE = ROA x financial leverage = net income / total assets (avg) x total assets / total equity (avg)