Formulas for exam Flashcards
Horizontal analysis
Horizontal percentage of base period amount = analysis Period Amount / base period amount
Always divide by base year
Horizontal percentage change for period = (analysis period amount – prior period amount) /
prior period amount
Always compare to previous year
Vertical analysis
Express each item in a financial statement as a percent of a base amount (total assets or net sales)
Vertical percentage of base amount = analysis amount / base amount
Comparative analysis
Three types of comparisons
Intracompany basis – comparisons within a company
Intercompany basis – comparisons between one or more competitor companies
Industry averages
Working capital
Working capital = current assets – current liabilities
Current ratio
= current assets / current liabilities
Cash current debt coverage
= cash provided (used) by operating activities / average current liabilities
Receivables turnover
= net credit sales / average gross receivables
Average collection period
= 365 days / receivables turnover
Inventory turnover
= cost of goods sold / average inventory
Days in inventory
= 365 days / inventory turnover
Debt to total assets
= total liabilities / total assets
Times interest earned
= (Profit + interest expense + income tax expense) / interest expense
Cash total debt coverage
= cash provided (used) by operating activities / average total liabilities
free cash flow
Net cash provided (used) by operating activities – net capital expenditures – dividends paid =
Return on common shareholders’ equity
= profit – preferred dividends / average common shareholders’ equity
Return on assets
= profit / average total assets
Profit margin
= profit / net sales
Asset turnover
= net sales / average total assets
Gross profit margin
= gross profit / net sales
Earnings per share
= profit – preferred dividends / weighted average number of common shares
Price earnings ratio
= share price / earnings per share
Payout ratio
= cash dividends / profit
Dividend yield
dividends per share/market price per share
