Financial Statement Analysis Flashcards
What is solvency?
The ability to meet financial obligations
What is working capital?
Current Assets - Current Liabilities
Measures short-term solvency
What is the current ratio?
Current Assets / Current Liabilities
Measures short-term solvency
What is the quick ratio?
(Cash + Marketable Securities + Net Receivables) / Current Liabilities
Eliminates inventory and prepaid expenses from current assets
- also caled “acid-test ratio”
- measures short-term solvency
What is the defensive-interval ratio?
(Cash + Marketable Securities + Net Receivables) / Avg. Daily Cash Expenditures
Measures # of days company can meet costs of basic operations
What is the debt-to-equity ratio?
Total Liabilities / Total Equity
Measures long-term solvency
What is times interest earned (TIE)?
EBIT / Interest Charges
Measures ability to meet interest payments
-EBIT is used since interest payments are tax-deductible
What is times preferred dividends earned?
Net Income / Annual Preferred Dividend Requirement
Measures ability to pay preferred dividends
What is operational efficiency?
Ability to generate income and to use assets efficiently and effectively
What is total asset turnover?
Total Sales / Avg. Total Assets
Calculates generation of sales per dollar of assets
What is receivables turnover?
Net Credit Sales / Avg. Net Receivables
Calculates efficiency of credit policies and collection
What is days’ sales outstanding?
360 / Receivables Turnover
Calculates avg. number of days to collect receivables
What is inventory turnover?
COGS / Avg. Inv.
What is days’ supply in inventory?
360 / Inventory Turnover
How do you calculate the length of an operating cycle?
Days’ Sales Outstanding + Days’ Supply in Inventory
Measures time from point of sale to cash collection
What is book value per common share?
Common Stockholders’ Equity / # of Common Shares Outstanding
Measures what common stockholders would receive if all assets were sold and creditors paid
How do you calculate common stockholders’ equity?
Total Stockholders’ Equity
- Preferred Stock
- cumulative PS dividends in arrears (even if undeclared)
= Common Stockholders’ Equity
The amount subtracted comprises “Preferred Stockholders’ Equity”
What is book value per preferred share?
Preferred Stockholders’ Equity / # Preferred Shares Outstanding
What is return on total assets?
EBIT / Avg. Total Assets
Measures efficiency with which assets generate earnings
What is Return on Common Stockholders’ Equity?
Net Income - Preferred Dividends
/
Avg. Common Stockholders’ Equity
Measures the leverage of CSE – if Return on CSE is greater than Return on Total Assets, then leverage is positive
What is Return on Stockholders’ Equity?
Net Income / Avg. Stockholders’ Equity
What is Earnings per Share (EPS)?
Net Income - Preferred Dividends
/
Avg. # of Common Shares Outstanding
Measures ability to pay dividends to common stockholders (by measuring profit per share)