Ratios Flashcards
What do the Liquidity Ratios show?
How easily a company pays debts
What do the Profitability Ratios show?
How profitable the company is
What does the Leverage Ratio show?
How much debt a company uses to run
What are the disadvantages of using ratios to assess the financial structure?
- Snapshot
- Standards
- Window Dressing
What are the liquidity ratios ?
Net Working Capital = Current Assets - Current Lia
Current Ratio = Current Assets / Current Lia
Quick Ratio = (Current Assets - Stock) / Current Lia
What is Solvency?
The degree to which financial obligations can be met towards providers of debt in event of liquidation
What are the solvency ratios?
- Debt Ratio = Liabilities / Total Assets
2. Interest Coverage = Operating Result / Interest Exp
What are the Profitability Ratios?
- Return on Assets = Operating Profit / Av. Assets
- Return on Assets before tax = Profitbt / Av. Equity
- Return on Assets after tax = Profitat / Av. Equity
- Cost of Debt = Interest Exp / Av. Liabilities
What is the interest margin and how do you calculate it?
ROA - COD
Shows if leverage is positive or negative
What is ACD?
ACD = Interest / Liabilities
Measures return on liabilities
What is the leverage ratio?
Leverage Ratio = Liabilities / Equity
What is the financial leverage effect?
(ROA - ACD) x Leverage Ratio
ROEbt using the financial leverage effect ratio
ROA + Financial Leverage Effect ((ROA-ACD) x Leverage Ratio)
What are the activity ratios + def?
- Total asset turnover ratio
- Stock turnover ratio (how often is the av. stock sold)
- Days inventory outstanding ratio (time stock stored)
- Days sales outstanding (time for customers to pay)
- Days payable outstanding (quick company pays outstanding invoices)
How do you calculate Total Asset Turnover Ratio?
Turnover / Average. Total Assets
