Ratios Flashcards
Days Sales in Inventory
Average inventory / COGS x Working days per year
Times Interest Earned (Coverage Ratio)
Income before interest expense and taxes / interest expense
Or
Earnings before interest and taxes / interest expense
Debt to Equity
Total liabilities / Total equity
LT Debt to Capitalization
LT Debt / LT Debt + Preferred Stk + Common Stk
LT Debt to Total Assets
LT Debt / Total Assets
Debt Service Coverage Ratio
Net Operating Income / Total Debt Service
Accounts Receivable Turnover
Net credit sales / net average AR
AR Turnover in Days
365 / (Net credit sales / average AR)
Asset turnover
Sales (net) / average total assets
Cash conversion Cycle
Days sales in AR / days in inventory - days payables outstanding
Book value per share
Total stockholders equity LESS preferred equity and dividends in arrears / number of common stock outstanding
Inventory Turnover
Measure of Liquidity
COGS / Average Inventory
Book value per share
Total shareholder equity - preferred equity / number of shares outstanding
Earnings per share
Basic - income available to common shareholders. / weighted average common shares outstanding
Dividend Yield
Annual dividends per common share / latest market price per common share
Dividend payout ratio
Cash dividends / net income - preferred dividends
Also
Dividend per common share / earnings per share
Times Preferred Dividend Ratio
Net Income / Preferred Stock Dividends
Gross margin or gross profit margin
Gross profit / net sales
Revenue-COGS / revenue
Net sales - cost of sales / net sales
Profit margin
Net income / net sales
Price-earnings ratio
Stock price / earnings per share
Rate of return on assets
Net income / average assets
Also return o. Equity x (1 - debt ratio)
Dividends per share
Dividends paid out / total shares
Return on Shareholder’s equity
Net income after taxes - preferred dividends / average common shareholders equity
Return on Equity
Net income - preferred dividends / average common equity
Average common equity is common stock, common APIC, and retained earnings (do not include preferred stock amounts)
Also
Roe = Profit margin x asset turnover x leverage
Also return on assets / (1 - debt ratio)
Certainty equivalent adjustments
Risk analysis technique based on utility theory.
Leverage
Average assets / average common equity
Measured by extent to which assets of entity financed with debt, which requires cash fixed payment
Days purchases in Ap
Average AP / COGS + change in inventory x 365
Working Capital
Current assets - current liabilities
Number of days in cash flow cycle
Average age of inventory + average age of AR - average age of AP
Return. On Assets
Profit margin x asset turnover
Average days’ sales in AR
Receivables turnover = net credit sales / average AR
360 / receivables turnover
Return on Stockeholders investment (ROSI)
Dividends + market value of earnings retained / number of shares x share price
Return on investment (ROI)
Net income / invested capital
(Can be measured at point in time or by taking the average over a period of time)
Price to cash flow (P/CF)
Stock price / operating cash flow per share
Gross margin ratio
Gross margin / net sales
Cash Flow Ratio
Cash flow from operating / current liabilities
Economic vs Accounting Profit
Economist deducts coat of capital (imputed) in calculating profit. Accountant deducts only oop operating expenses
Economic Value Added
Economic profit of a project
Focuses on earnings above cost of capital for shareholders
After-tax profit (aka after-tax operating income) - (total assets (aka investment) x weighted average cost of capital)
Also: net operating profit after taxes (NOPAT) - capital charge
Capital charge = invested capital x weighted average cost of capital (WACC)
Treasury Stock Method
Assumption that options & warrants exercised at beginning of period ( or date of issuance if later) and proceeds from the exercise would be used to purchase outstanding treasury stock).
Sustainable Equity Growth Rate (SEGR)
Return on equity x (1 - dividend payout ratio)
Sensitivity analysis
Determines how the results will change if the original data or the underlying assumptions change.
Process that identifies data changes that alter optimal solutions.
Probability Analysis
Helpful to combine with sensitivity analysis
Required rate of return
Risk-free rate + beta coefficient (market rate - risk-free rate)
Profit Margin Ratio
Percentage of each dollar of sales that is recognized as net income.
Operating income / sales revenue
Cash Ratio
Cash + cash equivalents + marketable securities / current liabilities
DuPont equation
Return on Equity (ROE) = profit margin x total asset turnover
Certainty equivalent adjustment
Risk analysis technique based on utility theory
Utility theory
Days purchases in AP Ratio (DPAPR)
Average AP / COGS + Change in inventory
Return on Shareholder Investment (ROSI)
Dividends + Market value of earnings retained / number of shares x share price
Return on Assets
Profit margin x asset turnover
Price multiple ratios
Uses share price ; influenced by management’s behavior
Economic profit
Revenue less actual costs and cost of capital
Working capital turnover (efficiency)
Turning assets into sales/revenues
Net sales revenue / net working capital (which is current assets - current liabilities)
Contribution margin
Unit sales price - unit variable cost
Also, sales less variable cost
Operating cycle
AR turnover + inventory turnover
Or
Days sales in AR + days sales in inventory
Stock value
Dividend per share / annual required rate of return - dividend growth rate
Book Value per Share
Total shareholders equity - preferred equity / common stock outstanding
Net Profit Margi
Net income / net sales
Degree of Financial Leverage
DFL = EBIT / EBIT - Interest
Equity Multiplier
Total assets / total common equity
Earnings per share using stocks (EPSS) and bonds (EPSB)
EPSS = (EBIT x (1 - tax rate)) / shares of stock
EPSB = (EBIT - bond interest) - (1 - tax rate) / shares of stock
Expected total return of an investment over a given time period
Includes all capital gains and any dividends
Ending price + dividends/ opening price
Profit margin
Net income / sales
Equity multiplier
Total assets / common equity
Working capital turnover
Net sales revenue/ net working capital
Accounting Profit
Total revenues - measurable/estimable expenses paid to outsiders to acquire and use all necessary factors of production. Does not include implicit costs
Cost of Capital
Weighted average cost in percentage form that a firm will incur in raising new funds to finance future investment
Economic profit
Total revenues - economic cost. It is the total revenue received from sale of output less all costs (explicit and implicit, including opportunity costs and return to the owner for use of owner’s capital and skill
Cash Ratio
Most conservative of liquidity ratios. Includes only cash and current assets readily converted to cash over current liabilities
Cash flow ratio
Cash flow from operations / current liabilities
