Ratios Flashcards
Current ratio
Type of ratio: Liquidity ratio
Formula: Current Assets/Current Liabilities
Quick Ratio
Type of ratio: Liquidity
Formula: Cash + Marketable securities + A/R / Current Liabilities
It’s trying to look at how quick can you turn your assets to cash.
Current cash to debt ratio
Net cash from Operations/ Avg Current liabilities
Debt to total asset ratio
Type: Coverage ratio
Total Liabilities/ Total assets
Debt to equity ratio
Type: Coverage ratio
Total liabilities/Total owner’s equity
Times interest earned
Type: Coverage ratio
Income before interest and taxes/ Interest expense
Cash to debt coverage ratio
Type: Coverage
Net cash from operations/ Avg Total liabilities
Define Activity ratios
Also what questions do they help answer
They focus on assets and how they’re being managed
How quickly can I sell my inventory?
How long does it take to collect my credit sales?
How well am I using assets to generate revenue?
Asset turnover
Type: Activity Ratio
Net Sales/Avg Total Assets
Receivables Turnover
Type: Activity ratio
Net (credit) sales/ Avg trade receivables (net of allowance)
Number of days sales in receivables
Type: Activity
365days/receivable turnover
Inventory turnover
Type:Activity
COGS/Avg inventory
Number of days sales in inventory
Type: Activity
365 days/ inventory turnover
Define Profitability ratios and the questions they help answer
Focus is on operations
Questions answered: How profitable is the business?
What are the common stockholders earning?
How is the stock market valuing our stock?
Profit margin on sales
Type: Profitability
Net Income/Net sales
