Formulas

Question 1

Balance Sheet Formula

Answer 1

Assets = Liabilities + Owners’ Equity

Question 2

Owner’s Equity Formula

Answer 2

Assets - Liabilities = Owner’s Equity

Question 3

Gross Margin

Answer 3

Net Sales - COGS
(stability in gross margin increases potential for high net income)

Question 4

Income before income taxes formula

Answer 4

Operating Income - Interest Expenses

Question 5

Income as Percentage of Revenue

Answer 5

(Net Income / Total Revenue) x 100

Question 6

Net Income formula

Answer 6

Revenue - (Expenses + Interest + Income Taxes)

Question 7

What ratios help determine a company’s Liquidity?

Answer 7

1. Current Ratio
2. Quick Ratio
3. Working Capital Ratio

Question 8

What Ratio helps to determine a company’s Leverage?

Answer 8

Debt to Equity Ratio

Question 9

What ratios help determine a company’s Profitability?

Answer 9

1. Gross Margin Ratio
2. Return on Assets Ratio
3. Return on Liabilities Ratio

Question 10

What are KPIs?

Answer 10

Key Performance Indicators

Question 11

What is EBITDA?

Answer 11

Earnings before interest, taxes, depreciation, and amortization

• measures a company’s financial health and ability to generate cash.

Question 12

How is EBITDA different from Net Income?

Answer 12

EBITDA = Net Income - (Taxes + Interest)

Question 13

Coverage Ratio

Answer 13

Net Income / Interest Expense

• Measures operating cash flow
• Looks at a company’s ability to service debt and meet financial obligations
• Helps compare companies across different industries