M8 - Ratio Analysis Flashcards
How do you calculate the Account Receivables turnover ratio?
You first calculate the average net receivables, by taking
[(Y1 A/R - Y1 Allowance for doubtful accounts) + (Y2 A/R - Y2 Allowance for doubtful accounts)]/2
Then you plug it into the formula:
AR Turnover = Net Credit sales/Average Net Receivables
How do you calculate total asset turnover?
Net Sales/Average total assets
Debt-To Equity Ratio
Total Liabilities/Equity (Capital stock + Retained Earnings+Additional PIC)
Average Collection Period
365/Accounts Receivable Turnover
Current Ratio
Current Assets (cash, AR, Inventory)/Current Liabilities
Inventory Turnover Ratio
COGS/Average Inventory
Quick Ratio
Cash+Net Receivables+Market Securities/Current Liabilities
Working Capital
Current Assets-Current Liabilities
Cash Ratio
Cash + Cash Equivalents + Marketable Securities/Current Liabilities
How to calculate operating cycle
AR Turnover in Days+Inventory Turnover In Days
How to calculate AR & Inventory Turnover in Days
365/AR Turnover
365/Inventory Turnover
How to calculate working capital turnover
Sales/ Average Working Capital
How to calculate net profit margin
Net Income (after income taxes)/Net Sales
How to calculate return on total assets
Net Income(after income taxes)/Average Total Assets
How to calculate return on equity
Net Income-Preferred Dividends/Average Common Equity
Debt to Asset Ratio
Total Liabilities/Total Assets
What does “times interest earned” measure?
The ability of a company to cover interest charges. The greater that ability the less the risk of bankruptcy.
How to calculate Times Interest Earned
Net Income before taxes + Interest(recurring income before taxes and interest)/ Interest
Operating Cash Flow to Total Debt
Operating Cash Flow/Total Liabilities
