Ratio Formulas

Question 1

What is the Asset Turnover Ratio?

Answer 1

Net Sales divided by Average Assets

Question 2

What is Return on Assets?

Answer 2

Net Income plus Interest expense (Net of Tax) Divided by Average Total Assets

Question 3

What is Return on Common Stock Equity?

Answer 3

Net Income less Preferred Dividends divided by Average Common Stock Equity

Question 4

What is PE Ratio?

Answer 4

Market Price per Common Share divided by Earning Per Share

Question 5

What is Dividend Yield?

Answer 5

Dividend per common share divided by Market price per common share

Question 6

What is Profit Margin on Sales?

Answer 6

Net Income divided by Sales

Question 7

What is Debt to Equity Ratio?

Answer 7

Total Liabilities divided by Shareholders Equity

Question 8

What is Equity Ratio?

Answer 8

Total Stockholders Equity divided by Total Assets

Question 9

What is times earned interest?

Answer 9

Net Income before Taxes/Interest Expense divided by Interest Expense

Question 10

What is Quick Ratio?

Answer 10

Current Assets (Net of Inventory and Prepaid) Divided by Current Liabilities

Question 11

What is Earnings Per Share if NO Preferred Stock Outstanding?

Answer 11

Net Income divided by Weighted Average Common Shares Outstanding.

Question 12

What is Earnings Per Share if there IS Preferred Stock Outstanding?

Answer 12

(Net Income minus Preferred Dividends) divided by Weighted Average Common Shares Outstanding

Question 13

What is Basic EPS calculation?

Answer 13

(Net Income minus Dividends on preferred Stock) divided by Weighted average common stock

Question 14

What is Diluted EPS calculation

Answer 14

(Net Income minus Dividends on preferred stock plus Potential Common Stock Adjustments) Divided by Weighted average common stock plus Weighted potential common stock

Question 15

How to calculate Incremental Shares

Answer 15

(Market Price minus Exercise Price) divided by Market Price

Question 16

What is step 1 in calculating the Gross Profit Method?

Sales=300 Beginning Inv=40 Net Purchases=220 Gross Profit as a % of sales=25%

Answer 16

1) Calculate COGS Available

Beginning Inventory plus Purchases

40+220=260

Question 17

What is step 2 in calculating the Gross Profit Method?

Sales=300 Beginning Inv=40 Net Purchases=220 Gross Profit as a % of sales=25%

Answer 17

Compute Gross Profit

Sales times Gross Profit as a % of Sales

300 X 25% = 75

Question 18

What is step 3 in calculating the Gross Profit Method?

Sales=300 Beginning Inv=40 Net Purchases=220 Gross Profit as a % of sales=25%

Answer 18

Calculate Cost of Goods Sold

Sales minus Gross Profit

300 - 75 = 225 OR 300 X (1-0.25) = 225

Question 19

What is step 4 in calculating the Gross Profit Method?

Sales=300 Beginning Inv=40 Net Purchases=220 Gross Profit as a % of sales=25%

Answer 19

Determine Ending Inventory

Cost of Goods Available for Sale minus Cost of Goods Sold

260-225 = 35

Question 20

How to convert Gross Profit from % of Sales to % of Cost. example - GP as % of sales is 25%

Answer 20

Gross Profit as a % of Cost divided by (1 plus Gross profit as a % of Cost)

0.25 divided by 1.25 = 0.20

Question 21

How do you calculate net income? Multi Step

Answer 21

Gross Sales minus Sales Returns = Net Sales

Net Sales minus Cost of Goods Sold = Gross Profit

Gross Profit minus S&A expenses = Operating Income

Operating Income plus Other Income (Gains/Dividends) minus other expenses (Loss from Trading/Interest in LT Debt)= Income before Taxes

Income before Taxes minus Provision for Taxes = Income from Continuing Operations

Income before continuing operations minus discontinued operations = Net Income

Question 22

What is the Defense Interval Ratio?

Answer 22

Liquidity ratio

Quick Ratio divided by average daily cash expenditures