Ratio Equations Flashcards
Asset Turnover
Net sales / Average total assets
Working Capital
Current assets - Current liabilities
Current Ratio
Current assets / Current liabilities
Debt to Asset
Total liability / Total assets
Times Interest Earned
(Net earning + Interest expense + Income tax expense) / Interest Expense
Profit Margin
Net income / Net sales
Leverage
Average total assets / Average shareholder’s equity
Return on Equity
Net income / Average shareholder’s equity
Profit margin x Asset turnover x Leverage
Average Shareholder’s Equity
(Beginning equity + Ending equity) / 2
Price-Earnings (P/E) Ratio
Market price per share / Earnings per share
Gross Profit Margin
Gross profit / Sales
Gross profit = Revenue - Cost of goods sold
(Dividends) Payout Ratio
Cash dividends declared / Net income
Current Ratio
Current asset / Current liabilities
Quick Ratio
Highly liquid current assets / Current liabilities
Accounts Receivable Turnover
Net credit sales / Average net accounts receivable
Net credit sales = Net sales - Cash sales
Net sales = Gross sales - Sales returns - Sales allowances
(most companies just report net sales as one item)
Average Collection Period
365 / Accounts receivable turnover
Inventory Turnover
Cost of goods sold / Average inventory
Days in Inventory
365 / Inventory turnover
Times Interest Earned
(Net income + Interest expense + Income tax expense) / Interest expense
Debt to Equity Ratio
Average total liabilities / Average total equity
Debt to Assets Ratio
Total liabilities / Total assets
Horizontal Analysis Method (Percentage Increase/Decrease)
Ex. (New sales # - Old sales #) / Old sales #
Return on Assets
Net income / Average total assets
Earnings Per Share
(Net income - Preferred dividends) / Average number of outstanding shares
