IS/BS Ratios

Question 1

Basic Earnings Per Share (Basic EPS)*

More Practice Problems

Answer 1

Basic EPS = (Net Income- preferred dividends paid)/ (weighted number of shares outstanding)

Question 2

Dilutive Earnings Per Share (Dilutive EPS)

More Practice Problems

Answer 2

Dilutive EPS= (Net Income - Preferred Dividends) + (Convertible Preferred Stocks) + (Convertible Debt Interest)/ (weighted average number of shares outstanding)

Question 3

Receivables Turnover Ratio (Activity Ratio)

Answer 3

HOW MANY TIMES THIS YEAR DID THE COMPANY COLLECT ITS ACCOUNTS RECEIVABLE

Receivables Turnover Ratio= sales revenue/ total accounts receivable—->

AMOUNT OF DAYS A COMPANY WILL GET PAID THEIR RECEIVABLE RECEIPTS

Question 4

Inventory Turnover Ratio (Activity Ratio)

Answer 4

HOW MANY TIMES A YEAR DOES A FIRM HAVE TO COMPLETELY RESTOCK ITS INVENTORY-

***INVENTORY TURNOVER RATIO= COGS/ INVENTORY ON HAND

Question 5

Payables Turnover Ratio (Activity Ratio)

Answer 5

Payables Turnover Ratio =yearly purchases on credit/ average notes payables

Question 6

Total Asset Turnover Ratio (Activity Ratio)

Answer 6

A measure of the effectiveness of a company to measure its ‘total asset turnover:’

Total Asset Turnover= Revenues/ Average Total Assets

Question 7

Fixed Asset Turnover Ratio (Activity Ratio)

Answer 7

Fixed Asset Turnover= Revenue/ Average Net Fixed Assets

*The turnover ratio should be close to industrial norm

Question 8

Working Capital Turnover Ratio (Activity Ratio)

Answer 8

How well is a company utilizing its working capital (current assets- current liabilities):

• Working Capital Turnover Ratio= Revenue/ (Average Working Capital)

Question 9

Defensive Interval Ratio (Liquidity Ratio)*

Answer 9

Defensive Interval Ratio= # of days that a company can pay its daily expenditures by liquidating its current liquid assets.

Defensive Interval Ratio= (cash+ marketable securities+ accounts receivables)/ (daily expenditures)

Question 10

Return on Assets (2 methods) (Profitability Ratio)

-BASED ON NET INCOME*

Answer 10

1. ) ROA= NET INCOME/ TOTAL ASSETS

2. ) ROA= [NET INCOME + INTEREST EXPENSE(1-TAX RATE)]/AVERAGE TOTAL ASSETS

Question 11

Operating Return on Assets (Profitability Ratio)

Answer 11

OROA= operating income/ total assets

Question 12

Return on Total Capital (ROTC/Profitability Ratio)

Answer 12

ROTC= EBIT/ Average Total Capital

Total Capital= Total Liabilities (all debts) + total equity

Question 13

Return on Equity (ROE) (Profitability Ratio)

Answer 13

ROE= net income/ average total equity

Question 14

Return on Common Equity (Profitability Ratio)

Answer 14

ROCE= net income- preferred dividends/ total equity