Other Ratios

Question 1

Asset turnover

Answer 1

Sales/average total assets

Indicates how efficiently assets are used
AKA: asset utilization ratios

Question 2

Asset turnover in days

Answer 2

365/(sales/average total assets)

Measures average number of days that it takes the company to earn sales equal to the amount of assets that it has

Question 3

Accounts payable turnover

Answer 3

Purchases /average accounts payable
Measures how quick AP are paid

Higher: quicker the payments are made

If it’s too high, company may have poor cash management

Question 4

Days payable outstanding

Answer 4

Ending AP/(COGS/365)

estimates the number of days it takes a company to pay it’s suppliers
High: may indicate difficulty making payments

Question 5

Price earnings

Answer 5

Market price of shares/earnings per share

Provides an indication of how much an investor needs to invest in order to receive one dollar of the companies earnings

Question 6

Dividend payout

Answer 6

Yearly dividend per share/earnings per share or dividends /net income

Measures the amount of income that translates to dividends in a year

Low ratio: could indicate the funds generated from operations are lacking and company is in poor financial health
High ratio: indicates a ROC in excess of funds generated from operations, which could indicate financial difficulties bcz capital should be invested in the business to earn future operating cash flows and not returned to investors