Notes to FS Flashcards
Working Capital and Ratio (Current Ratio)
Measure extent current assets exceed current liabilities. # times CA can cover CL
WC=CA-CL
WC Ratio= CA/CL
Acid-test Ratio(Quick Ratio)
Measures highly liquid assets and CL in terms # times cash and assets that can quickly be converted to cash to cover CL
(Cash + net receivables + marketable securities) / Current Liabilities
Securities Defensive-Interval Ratios
Relationship between highly liquid assets and average daily use of cash in terms of # days cash and asset can be quickly converted to support operating costs
(Cash + Net Receivables + Marketable Securities) / Average Daily Cash Expenditures
Times Interest Earned Ratio
Ability of current earnings to cover interest pmts for period
(Net Income + Interest Expense + Income Tax) / Interest Expense
Times Preferred Dividend Earned Ratio
Ability of current earnings to cover preferred dividends for a period
Net Income/ Annual Preferred Dividend Obligation
Acct Rec Turnover
Measures # times acct rec turnover during period (efficiency of collection procedures)
Net Credit Sales/Average net Accts Rec
(eg Beg+End/2)
Days sales in Average Rec
Measure average # days required to collect rec
business days in business yr (eg. 300-360-365)/Acct Rec Turnover
Inventory Turnover
Measures # times inventory turnover in period-indicates over/under stocking of inv
COGS/Average Inventory (eg. Beg+End/2)
Days Supply in Inventory
Measures # days inventory held before sold/used-Efficiency of general inv management
Business days in yr/Inventory Turnover
Operating # of Cycle=Days in Operating
Measures Avg length time invest cash in Inv, convert inv to rec, and collect rec-time go from cash back to cash
Days’ Sale in A/R + Length Cycle # days supply in Inv
Profit Margin
Measures net profitability on sales
Net Income/Net Sales
Return on Total Assets
Measures rate of return on Total Assets- indicates efficiency w/ which invested assets are used
(Net Income + interest expense) / Average Total Assets
Return to Common Stockholders Equity
Measures Rate of Return(earnings) on common SH invest
Net Income-Preferred Dividend) / Average Common Stockholders’ Equitiy (Eg. Beg+End/2
Return to Owners’ Equity
Measures rate of Return on all SH invest
Net Income/ Average Stockholders’ Equity (Eg. Beg+End/2)
EPS
Measures income earned per share Common Stock-ability to pay dividends to common shareholders
(Net Income-Preferred Dividends)/Weighted Average # Shares Outstanding
