Formulas Not Provided During Exam Flashcards
Accounts Receivable Turnover Ratio (3)
credit sales / accounts receivable
Days Sales Outstanding (3)
365 / accounts receivable turnover ratio
Asset Turnover Ratio (3)
sales / total assets
Inventory Turnover Ratio (3)
cost of goods sold / inventory
Working Capital (3)
current assets - current liabilities
Current Ratio (3)
current assets / current liabilities
Acid-Test Ratio (or Quick Ratio) (3)
(cash + marketable securities + accounts receivable) / current liabilities
Debt-to-Equity Ratio (3)
long-term debt / shareholders’ equity
Debt-to-Assets Ratio (3)
total liabilities / total assets
Net Profit Margin (3)
net income / sales
Return on Assets (ROA) (3)
net income / total assets
Return on Equity (ROE) (3)
net income / shareholders’ equity
Equity Multiplier (3)
total assets / shareholders’ equity
DuPont Identity (3)
net profit margin x asset turnover x equity multiplier
Premium-to-Surplus Ratio (5)
net written premium / policyholders surplus
Reserves-to-Surplus Ratio (5)
(unearned premium reserve + loss and LAE reserves) / policyholders surplus
Liquidity Ratio (5)
(cash + invested assets) /
(unearned premium reserve + loss and LAE reserves
Loss Ratio (5)
(incurred losses + LAE) / earned premiums
Expense Ratio (5)
underwriting expenses / written premium
Combined Ratio (5)
loss ration + expense ratio
Investment Income Ratio (5)
net investment income / earned premiums
Operating Ratio (5)
combined ration - investment income ratio
Investment Yield Ratio (5)
net investment gain (loss) / (total cash + invested assets)
Return on Policyholders’ Surplus (5)
net income / policyholders’ surplus
Annual Rate of Return for a Bond (7)
(interest + capital gain) /
bond price at beginning of the year
Annual Rate of Return for a Stock (7)
(dividend + capital gain) /
share price at beginning of the year
Insurance Leverage (10)
reserves / policyholder’ surplus =
(Premiums written / policyholder’ surplus) x
(reserves / premiums written)
