Ratios

Question 1

What is the current ratio?

Answer 1

Current Assets/Current Liabilities

Question 2

What is the quick ratio?

Answer 2

Current assets minus PP & inventory/ current liabilities

Question 3

Price to earnings ratio?

Answer 3

Price per common share/basic EPS

Question 4

Return on Equity ratio?

Answer 4

Net income/ Avg total equity

Question 5

Return on assets ratio?

Answer 5

Net income/ Avg total assets

Question 6

Times interest ratio?

Answer 6

EBIT/ interest expense

Question 7

Total debt ratio?

Answer 7

Total debt/total assets

Question 8

What do profitably ratios do?

Answer 8

Measure how effectively resources are used.

Question 9

Operating Profit Margin ratio?

Answer 9

Operating income/sales

Question 10

Inventory ratio?

Answer 10

COGS/Average Inventory

Question 11

Gross profit percentage ratio?

Answer 11

Sales minus COGS/Sales

*Gross profit/sales

Question 12

What is the operating cycle?

Answer 12

Average days in sales inventory
PLUS
Average days in A/R

Question 13

Profitability ratio?

Answer 13

Gross profit/ sales

Question 14

A/R turnover ratio

Answer 14

Net sales or revenue /Avg net A/R

(net is minus allowance for credit losses)

Question 15

A/P turnover ratio

Answer 15

COGS/Average balance in A/P

Question 16

Debt to equity ratio

Answer 16

Total liability/Total equity

Question 17

Book Value per share ratio

Answer 17

Net assets available to common shareholders/ending common shares outstanding

(Net assets available to common shareholders can also be stated as total equity minus liquidation value of preferred stock)

Question 18

BEPS ratio

Answer 18

Income available to common shareholders/weighted average number of common shares

Question 19

When a transaction reduces the denominator and numerator by equal amounts, what happens?

Answer 19

It increases a ratio that is greater than 1:1
It decreases a ratio that is lower than 1:1