Identities and Ratios

Question 1

Cash flow identity

Answer 1

Cash flow from assets = Cash Cash flow from assets=cash flow to creditors + Cash flow from stockholders

Question 2

What does the cash flow identity tell us?

Answer 2

How much money we have left over to give to creditors and investors

Question 3

Cash flow from assets

Answer 3

Cash flow from assets =
Operating cash flow
- Net capital spending
- change in NWC

Question 4

Operating cash flow =

Answer 4

EBIT+Deprec-Taxes

Question 5

Net Capital Spending =

Answer 5

Ending NFA-Beg NFA +depreciation

Question 6

Change in NWC =

Answer 6

End NWC - Beg NWC

Question 7

Cash flow to creditors =

Answer 7

Interest paid - net new borrowing

Question 8

Cash flow to stockholders =

Answer 8

Dividends - net new equity raised

Question 9

What are the 3 short-term solvency or liquidity ratios?

Answer 9

1. Current ratio
2. Quick Ratio
3. Cash ratio

Question 10

Current ratio

Answer 10

CA/CL

Question 11

Quick Ratio

Answer 11

CA-INVT/CL

Question 12

Cash ratio

Answer 12

Cash/CL

Question 13

What are the long-term solvency or financial leverage ratios?

Answer 13

1. Total Debt Ratio
2. Debt-equity multiplier
3. Equity Multiplier
4. Times interest eared ratio
5. Cash coverage ratio

Question 14

Total debt ratio

Answer 14

TA-TL/TA

Question 15

Debt-equity ratio

Answer 15

Total debt/total equity

Question 16

Equity multiplier

Answer 16

Total Assets/Total Equity

Question 17

Times interest earned ratio

Answer 17

EBIT/Interest

Question 18

Cash coverage ratio

Answer 18

EBIT+deprec/interest

Question 19

Asset ulitization, or turnover, ratios

Answer 19

1. Inventory turnover
2. Days’ sales in inventory
3. Receivables turnover
4. Payables turnover
5. Days’ sales in receivables
6. Days’ costs in payables
7. Total Asset turnover
8. Capital intensity

Question 20

Inventory turnover

Answer 20

COGS/Invt

Question 21

Days’ sales in inventory

Answer 21

365/Invt turnover

Question 22

Receivables turnover

Answer 22

Sales/Acct Recievable

Question 23

Payables turnover

Answer 23

COGS/Accounts payable

Question 24

Days’ sales in receivables

Answer 24

365/Receivables turnover

Question 25

Days’ costs in payables

Answer 25

365/Payables turnover

Question 26

Total asset turnover

Answer 26

Sales/Total Assets

Question 27

Capital intensity

Answer 27

Total assets/Sales

Question 28

What are the profitablility ratios

Answer 28

Profit margin
Return on Assets
Return on Equity
ROE 2

Question 29

Profit margin

Answer 29

Net income/sales

Question 30

ROA

Answer 30

Net income/total assets

Question 31

ROE 1

Answer 31

Net income/total equity

Question 32

Roe 2

Answer 32

Net Income/Sales X Sales/Assets X Assets Equity

Question 33

What are the market value ratios?

Answer 33

Price-earnings ratio
Price-sales ratio
Market to book ratio
EbITDA

Question 34

Price-earnings ratio

Answer 34

Price per share/EPS

Question 35

Price-sales ratio

Answer 35

Price per share/Sales per share

Question 36

Market to book

Answer 36

Market value per share/Book value per share

Question 37

EBITDA

Answer 37

Interprise value/EBITDA