Ratio Analysis (Formulas)

Question 1

Profitability Ratios -
How do you calculate Gross Profit Margin?

Answer 1

(Sales (net) - COGS) / Sales (net)

Question 2

Profitability Ratios -
Profit Margin Formula

Answer 2

Net Income / Sales (net)

Question 3

Profitability Ratios -
Return on Sales Formula

Answer 3

Income before interest income, interest expense or taxes / Sales (net)

EBIT / Sales (net)

Question 4

Profitability Ratios -
Return on Assets Formula

Answer 4

Net Income / Avg. Total Assets

Where Avg. Total Assets = (Yr 1 assets + Yr 2 assets) / 2

Question 5

Profitability Ratios -
DuPont Return on Assets Formula

Answer 5

First, ROA -

Net Income / Avg Total Assets

So DuPont is:
Net Income / Sales (net) x Sales (net) / Avg Total Assets
i.e.
ROA = Profit Margin x Asset Turnover Ratio

Question 6

Profitability Ratios -
Return on Equity Formula

Answer 6

Net Income / Avg Total Equity

REMEMBER! - AVERAGE TOTAL EQUITY

AND

Net Income = Income AFTER Interest and Taxes

Question 7

Profitability Ratios -
Operating Cashflow Ratio Formula

Answer 7

Operating Cash flow / Current Liabilities

Question 8

Liquidity Ratios -
Current Ratio

Answer 8

Current Assets / Current Liabilities

Question 9

Liquidity Ratios -
Quick Ratio

Answer 9

(Current Assets - Inventory and Prepaid Expenses) / Current Liabilities

OR

(Cash + Cash Equivalents + Marketable Securities + Receivables (net) ) / Current Liabilities

Where Net Receivables means you need to deduct Allowance for Doubtful Accounts from the Receivables number

Marketable securities are AKA Trading Securities - so they impact both quick and current ratio

Question 10

Liquidity Ratios -
Accounts Receivable Turnover Formula

Answer 10

Sales (net) / Average Accounts Receivable

Question 11

Liquidity Ratios:
Days Sales in Accounts Receivable Formula

Answer 11

Ending Accounts Receivable / (Sales (net) / 365))

Question 12

Liquidity Ratios:
Inventory Turnover Formula

Answer 12

COGS / Average Inventory

Question 13

Liquidity Ratios
Days in Inventory Formula

Answer 13

Ending Inventory / (COGS / 365)

Question 14

Liquidity Ratios
Accounts Payable Turnover Formula

Answer 14

COGS / Average Accounts Payable

Question 15

Liquidity Ratios
Days of Payables Outstanding Formula

Answer 15

Ending Accounts Payable / (COGS / 365)

Question 16

Liquidity Ratios
Cash Conversion Cycle Formula

Answer 16

Days in AR + Days in Inventory - Days in AP

Question 17

Solvency Ratios:
Debt-to-Equity Ratio

Answer 17

Total liabilities / Total Equity

Question 18

Solvency Ratios:
Total Debt Ratio

Answer 18

Total Liabilities / Total Assets

Question 19

Solvency Ratios:
Equity Multiplier

Answer 19

Total Assets / Total Equity

Question 20

Solvency Ratios:
Times Interest Earned

Answer 20

Earnings BIT or Income BIT / Interest Expense

Question 21

Performance Metrics:
Earnings Per Share

Answer 21

Income available to Common Shareholders / Weighted Avg of Common Shares Outstanding (WACSO)

Question 22

Performance Metrics:
Price-to-Earnings Ratio

Answer 22

Price per share / Basic EPS

Question 23

Performance Metrics:
Dividend Payout

Answer 23

Cash Dividends / Net Income

Question 24

Performance Metrics:
Asset Turnover

Answer 24

Sales (net) / Avg Total Assets