ratioooos Flashcards
what is the debt to equity ratio (formula and meaning)
dividing a company’s total liabilities by its shareholder equity
used to evaluate how much leverage a company is using
Higher leverage ratios tend to indicate a company or stock with higher risk to shareholders
return on assets (formula and meaning)
indicator of how profitable a company is relative to its total assets
how efficient a company’s management is at using its assets to generate earnings
Return on Assets = net earnings + interest expense / average total assets
Higher ROA indicates more asset efficiency
asset turnover (formula and meaning)
(net sales) operating revenues / average total assets
efficiency of a company’s assets to generate revenue or sales
higher ratio is favored because there is an implication that the company is efficient in generating sales or revenues
A lower ratio illustrates that a company is not using the assets efficiently and has internal problems
accounts receivable turnover ratio (formula and meaning)
net credit sales / average net accounts receivable
you take off the AFDA per account receivable
accounting measure used to quantify a company’s effectiveness in collecting its receivables or money owed by clients
do the 365/ ratio thing to find out the average of all the remaining receivables
high receivables turnover ratio can indicate that a company’s collection of accounts receivable is efficient and that the company has a high proportion of quality customers that pay their debts quickly
A low receivables turnover ratio might be due to a company having a poor collection process, bad credit policies, or customers that are not financially viable or creditworthy
return on equity (formula and meaning)
net earnings / average shareholders’ equity
you look at the amount of profits that investments by shareholders allow you to get
Return on equity measures how effectively management is using a company’s assets to create profits
have to compare with ourselves and competitors
A normal ROE in the utility sector could be 10% or less.
current ratio
current assets / current liabilities
measures how a company can pay its current obligations with its current assets
between 1 and 2 is gyu
sometimes can be too high
sometimes too low
net profit margin ratio
net earnings / operating revenues (net sales)
it shows how much each dollar from sales generated profit
gross profit percentage
measures excess of sales prices over the costs
gross profit / operating revenues (net sales)
