Module 5 - Financial Analysis Flashcards
What are the 4 categories of Financial Measures/Ratios?
- Liquidity Measures
- Debt Ratios
- Profitability Measures
- Funds Management/ Turnover ratios
What 3 measures are categories as Liquidity Measures?
- Working capital
- Current Ratio
- Quick Ratio
What 2 measures are categorized as Debt Ratios?
Debt-to-Equity Ratio
Long-Term Debt Ratio
What 7 measures are categorized as Profitability Measures?
- Gross Margin
- Gross Margin Ratio
- Return on Sales
- Earnings per Share
- Return on assets
- Return on equity
- Return on total capital (employed capital)
What 2 measures are categorized as Funds management / Turnover ratios?
Inventory Turnover
The collection period
Which measure is an indicator of a companies ability to survive in the near future?
Working Capital
Current Assets - Current Liabilities
What ratio indicates the appropriate working capital?
Current Ratio
Current Assets / Current Liabilities
What ratio measure identifies assets that can be quickly turned into cash?
Quick Ratio
Cash + Marketable Securities + Receivables
/
Current Liabilities
Which measure determines the relative amount of debt to equity?
Debt to Equity Ratio
Total Liabilities / Total Shareholder Equity
Which measure is an indicator of a companies credit worthiness?
Long-Term Debt Ratio
Long-Term Debt / Long-term Debt + Shareholder equity
Which of the 5 major accounts (reports) are profitability measures associated with?
Income Statement
What is the calculation to determine Return on Assets or (ROI)
Net Income
/
Total Assets
What is Return on Equity used to determine?
How is it calculated?
Used to assess how a company is capitalized (dept vs equity)
Net Income
/
Total Shareholder Equity
what is Return on Total Capital used for?
Used to compare one company with others
How to calculate Inventory turnover
How to calculate number of days inventory stays in the company
Cost of Goods Sold / Average Inventory = Turnover
365 / Turnover = days in inventory
What does the “collection period” measure?
Average amount of time it takes to collect cash
The collection departments effectiveness
Other Performance Measures - Define Return on Net Assets (RONA)
Similar to ROTC - but used at the division level measuring the return on the net assets being used in the division
Other Performance Measures - Define Total Shareholder Return (TSR)
Return to shareholders over a period of time taking into account share price movement and dividends
May or may not include treasury stock
Other Performance Measures - Define Economic Value Added (EVA)
Estimates economic profit of a firm - profit minus cost of capital
Other Performance Measures - define Earnings Before Interest and Taxes (EBIT)
Also Called Operating Income - includes depreciation and amortization - used by equity based companies to drive incentive plans
Other Performance Measures - define Earnings Before Interest, Taxes, Depreciation, Amortization (EBITDA)
Start up or highly leveraged companies might use this as a performance measurement when cash flow is the focus
Incentive to generate cash
Which of the following is a profitability measure A. Gross Margin Ratio B. Number of Days Sales in Receivable C. Current Ratio D. Long-Term Debt Ratio
A. Gross Margin Ratio
What type of measure or ratio is calculated using the following equation?
Accounts Receivable x number of days in the period
/
Credit Sales
A. Profitability Measure
B. Liquidity Measure
C. Debt Ratio
D. Funds Management Ratio
D. Funds Management Ratio
Which of the following financial ratios should be used to determine a companies ability to pay obligations in the near future?
A. Current Assets/Current Liabilities
B. Long-Term Debt / Long-term Debt + Shareholder Equity
C. Net Income/ Total Assets
D. Total Liabilities/ Total Assets
A. Current Assets/ Current Liabilities
Which performance measure would most likely be used by a start up company where cash is the focus and there is an incentive to generate cash?
A. TSR Total Shareholder Return
B. EBIT Earnings Before Interest and Taxes
C. EBITDA Earnings Before Interest Taxes Depreciation and Amortization
D. Economic Value Added (EVA)
C. EBITDA
