Ratio Analysis Flashcards
Ratio Analysis
Compares sets of figures from a single year’s performance
Examines relative numbers and relationships
Trend analysis
Process of comparing financial data from year to year
Tracks absolute numbers
Types of financial ratios
Profitability
Liquidity
Activity
Leverage/Debt
Profitability ratios
Show how well company is generating profits
Return on Sales
Return on Equity
Earnings per Share
Return on Sales
Profit margin
The ratio between net income after taxes and net sales
Net Income/Net Sales
Return on Equity
The ratio between net income after taxes and total owner’s equity
Net income/Total owner’s equity
Earnings per Share
Measure of a firm’s profitability for each share of outstanding stock, calculated by dividing net income after taxes by the average number of shares of common stock outstanding
Net income/average # of shares
Liquidity Ratios
Measure a firm’s ability to pay its short-term obligations
Current Ratio
Quick Ratio
Working capital
Current assets-current liabilities
Current ratio
Measure of a firm’s short-term liquidity
Current assets/current liabilities
Quick ratio
Acid test ratio
Measure of firm’s short-term liquidity
Current assets-inventory)/current liabilities
Activity ratios
Analyzes how well a company is managing and making use of its assets
Inventory turnover ratio
Measure of the time a company takes to turn its inventory into sales
COGS/Average inventory
Accounts receivable turnover ratio
Measure of the time a company takes to turn its accounts receivable into cash
Net sales/Average accounts receivable
Leverage/Debt Ratio
Reflect company’s ability to pay its long-term debts
