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Finance 1 > Ratio Analysis > Flashcards

Ratio Analysis Flashcards

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1
Q

What is trend analysis?

A

Comparing the ratios over a period of time

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2
Q

What is ratio analysis good for?

A

Knowing the financial wellbeing of a company is important for the stakeholders

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3
Q

What is horizontal analysis?

A

You compare the line items with the same line item of the previous year

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4
Q

What is the vertical analysis?

A

You take the total assets from the balance sheet or take the total sales from the income statement as 100% and see how much everything is

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5
Q

What do liquidity ratios tell you?

A

These indicate if the company is able to pay all the bills on time. Interested in the ability of a company to pay off its short term debt

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6
Q

What is the formula for current ratio?

A

current assets / current liabillities

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7
Q

What is the formula for quick ratio?

A

(current assets - inventory) / current liabillities

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8
Q

What is the formula for net working capital?

A

Current assets - current liabilities

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9
Q

What do leverage ratios tell you?

A

Measures how heavily a company is financed by debt. This influences the ability to be able to pay back everything in case of bankruptcy

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10
Q

What is the formula for debt ratio?

A

Total debt / total assets

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11
Q

What is the formula for Debt to Equity ratio?

A

Total debt / total equity

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12
Q

What is the formula for Times Interest Earned?

A

EBIT / interest

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13
Q

What do profitability ratios tell you?

A

How worthwhile investment is to the provided of funds. We can look at the profitability for owners and for debt holders. Give information about the yield of sources of funds: equity & debt. These ratios always have a %!

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14
Q

What is the formula for Return on Equity (ROE)

A

Annual profit/equity

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15
Q

What is the formula for Return on Debt (ROD)

A

Annual interest/total debt

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16
Q

What is the formula for Return on Investment (ROI)

A

Margin on sales * turnover rate or EBIT / average total investment

17
Q

Leverage effect is calculated by:

A

ROE = ROI (ROI - ROD) * (D/E)

18
Q

What do activity ratios tell you?

A

How effectively a business is using its resources. They are based on comparisons between the level of sales and certain assets

19
Q

What is Average Collection Period?

A

A long collection period means the business is too generous in granting credit or too soft in enforcing collecting policies.

20
Q

How to calculate the average collection period?

A

(receivables / sales) * 365

21
Q

What is the average inventory period?

A

Shows how long it takes for the average inventory to sell

22
Q

What is the turnover rate?

A

Shows how long it takes for the average inventory to sell

23
Q

How to calculate the average inventory period?

A

(Inventory level / COGS) * 365

24
Q

How to calculate the turnover rate?

A

Annual sales / total assets

25
Q

What is the Earnings per share?

A

How much profit is avaibable per share

26
Q

How do you calculate the EPS?

A

Net profit / the number of shares

27
Q

What is the P/E ratio?

A

Indication for a price one pas for a dollar in earnings. Indication for a price of the profits

28
Q

How do you calculate the P/E ratio?

A

Market price of a share / EPS

29
Q

What is the dividend yield?

A

Focusses on dividends in order to assess the attractiveness of a share. It indicates the rate of return an investor would obtain solely on the basis of paid dividends. Higher expected profits in the future lead to higher market prices.

30
Q

How do you calculate the dividend yield?

A

dividend per share / market price per share

31
Q

What is total yield?

A

Return to the stockholders with market price taken into consideration

32
Q

How do you calculate the total yield?

A

(Dividend per share - market price change) / market price per share

33
Q

What is dividend cover?

A

The number of times that a company could pay the dividend from the earnings that year. Gives an indication of how to secure future dividend payments are likely to be. The higher the ratio the greater the coverage.

34
Q

How do you calculate the dividend cover?

A

(net) earnings / dividends

35
Q

What is Pay Out ratio?

A

Shows the fraction of earnings that are paid to stockholders. This ratio is likely to be low for a high growth business

36
Q

How do you calculate the Pay Out Ratio?

A

Dividends / earnings

37
Q

What is market to book ratio?

A

An indication to what extent the company has created value over an above its book value

38
Q

How to calculate the market to book ratio?

A

Market value / book value

Finance 1 (5 decks)

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