Fs Ratio & Metrics Flashcards
Profabality ratio asses a companies ability
To generate profit from its sales, operations, assets, or equity
Liquidity ratio added a companies ability to
Solvency does
Pay off short term
Pay off long term
Increases in numerator
Decreases in numerator?
Increases ratio
Decrease
Direct relationship
Increases in the denominator
Decrease
Decrease ratio
Increase
Inverse
Profit margin
Net income / net sales
Return on sales
Earning before income tax / net sales
Gross profit margin
Gross profit / net sales
Return on assets
Net income / average total assets
Return on equity
Net income / average total equity
Ratios are used by people
Inside & out of business
Ratios that show financial risk
Liquidity and solvency
Net income 5 / sales 8
Profit margin
Down
Net income 10 / sales 7
Profit margin
Goes up
No preferred stock means
All equity is common
Payout rate
Dividends declared / net income - preferred dividends
If debt is higher than equity
Less solvent
Net income more than equity
Higher return on equity
Income statement measures
Balance sheet measures
Performance
Financial risk
Earnings before income tax could also be called
Operating profit
Competition goes up, what goes down
Profit margin
To be profitable, return on asset should be (business)
Greater than cost of assets
To be profitable return on equity should be greater than (stockholders)
Require return given risk
If a ratio uses sales, never
Use gross sales ; Use NET sales
Ebit formula
Net income + interest + taxes
