Financial Statement Ratios

Question 1

Working Capital

Answer 1

Current assets - Current liabilities

measure solvency

Question 2

Current Ratio

Answer 2

Current assets / Current liabilities

short term debt paying ability

Question 3

Quick ratio/acid test

Answer 3

CMR(rec.net) / Current liabilities

immediate short term liquidity

Question 4

Current cash debt coverage ratio

Answer 4

Net cash provided by operating activities /
Average current liabilities

ability to pay off current liabilities in a given year from its operations

Question 5

Receivables turnover

Answer 5

Net CREDIT sales / Average trade receivables(net)

liquidity of receivables

Question 6

Inventory turnover

Answer 6

Cost of goods sold / Average inventory

liquidity of inventory

Question 7

Asset turnover

Answer 7

Net sales / Average total assets

measures how efficiently assets are used to generate sales

Question 8

of day’s supply in average inventory

Answer 8

360 / inventory turnover

OR

Average ending inventory / Average daily COGS

measures # of days required to sell inventory

Question 9

Profit margin on sales (gross margin)

Answer 9

Net income / Net sales

measures net income generated by each dollar of sale

Question 10

Rate of return on assets

Answer 10

Net income / Average total assets

measures over all profitability of assets

Question 11

Rate of return on common stock equity (ret on equity)

Answer 11

Net income - Preferred dividends / Average common stockholder’s equity

measures profitability of owner’s investment

Question 12

Earnings per share

Answer 12

Net income - Preferred dividends / weighted shares of CS outstanding

measures net income on each share of common stock

Question 13

Price earnings ratio

Answer 13

Market price of stock / earnings per share

measures the ratio of market price per share to earnings per share

Question 14

Payout ratio

Answer 14

Cash dividends / Net income

measures percentage of earnings distributed in the form of dividends

Question 15

Debt to Equity

Answer 15

total debt / stockholder’s equity

shows creditors the company’s ability to sustain losses

Question 16

Debt to total assets

Answer 16

total debt / total assets

measures the % of total assets provided by creditors

Question 17

Times interest earned

Answer 17

Income b4 interest expense and taxes / interest expense

measures ability to meet interest payments as they come due

Question 18

Cash debt coverage ratio

Answer 18

net cash provided by operating activities / average total liabilities

measures a company’s ability to repay its total liabilities in a given year from its operations

Question 19

Book value per share

Answer 19

common stockholder’s equity / outstanding shares

measures the amount each share would receive if the company were liquidated at the amounts reported on the balance sheet