Ratio equations Flashcards
Equity Multiplier
Total assets/Total equity
debt to equity ratio
total debt/ total equity
total debt ratio
(total assets - total equity)/ total assets
Cash ratio
cash/ current liabilities
Measures short-term debt paying ability
quick ratio
(Current assets-inventory)/ current liabilities
Current ratio
Current assets/ current liabilities
ability to pay short term debts
price-earnings ratio
Market price per share/ basic earnings per share
basic earnings per share
profit available to common shareholders/ weighted ave # of common shares
not very useful, you need to divide it by something else to be comparable
market to book ratio
market value per share/ book value per share
Return on Equity (RoE)
Net income/ total equity
Return on assets (RoA)
net income/ total assets
for every dollar in assets they get $x in income
Profit margin
net income/ sales
total asset turnover
sales/ total assets
higher is better: it indicates that for every dollar invested in assets, more net income is being generated
receivable turnover
Net credit sales/ average accounts receivable
(from this year and previous year)
Measures liquidity of receivables
Inventory turnover
COGS/inventory
Cash coverage ratio
(EBIT + Depreciation)/ Interest
note: Earnings before interest and taxes
Long-term debt ratio
Long-term debt/ (long-term debt - total equity)
debt to asset ratio
total liabilities/total assets
(percentage of assets financed by debts)
Solvency ratio, ability to pay off short term debts
Working capital
Current assets-current liabilities
payback ratio
cash dividends declared/net income
Measures the percentage of profit distributed in the form of cash dividends to common shareholders
Dividends yeild
dividends declared per share/market value per share
Measures the profit generated by each share, based on the market price of the shares
return on common shareholders’ equity
income available to CS/Ave CS equity
Measures the company’s profitability from the shareholders’ viewpoint
