Ratios

Question 1

Net profit margin

Answer 1

Net income/revenue

Question 2

Gross profit margin

Answer 2

Gross profit/revenue

Question 3

Current ratio

Answer 3

Current asset/current liability

Question 4

Quick ratio

Answer 4

(Cash+ marketable securities + receivables)/ current liabilities

Question 5

Cash ratio

Answer 5

(Cash + marketable securities)/current liabilities

Question 6

Long term debt to ratio

Answer 6

Total long-term debt/ total equity

Question 7

Debt to equity

Answer 7

Total debt/total equity

Question 8

Total debt

Answer 8

Total debt/ total assets

Question 9

Financial leverage

Answer 9

Total assets/ total equity

Question 10

What the liquidity category measure

Answer 10

It measure the company’s ability to meet its short-term obligations

Question 11

What does the solvency category measures

Answer 11

Measure a company ability to meet long-term obligations. Subset of these ratios also known as leverage and long term debt ratios

Question 12

What does the profitability category measure

Answer 12

Measure the company ability to generate profits from its resources or sales

Question 13

Inventory turnover

Answer 13

Cost of goods sold/average inventory

Indicate inventory management effectiveness.

The higher the better

Question 14

Days of inventory on hand

Answer 14

Numbers of days in period/ inventory turnover

The lower the better

Question 15

Receivable turnover

Answer 15

Revenue/average receivable

The higher the better

Question 16

Days of sale oustanding

Answer 16

Number of days in period/receivable turnover

Lower the better

Times to receive money from customers

Question 17

Payable turnover

Answer 17

Cogs/average trade payable

How many times per year the company pays off all its creditors

Lower the better

Question 18

Numbers of days of payable

Answer 18

Number of days in a period/payable turnover

Higher the better

The average number of days the company takes to pays its suppliers

Question 19

Working capital turnover

Answer 19

Revenue/average working capital

How efficiently the company generates revenue with its working capital

Higher the better

Question 20

Fixed asset turnover

Answer 20

Revenue/average net fixed assets

How efficiently the company generates revenues from its investments in fixed assets

Higher the better

Question 21

Total assets turnover

Answer 21

Revenue/average total assets

Measure company overall ability to generate revenues with a given level of asset

Higher the better

Question 22

Debt to asset ratio (solvency)

Answer 22

Total debt/total assets

Percentage of total asset financed with debt

The lower the better

Question 23

Debt to capital ratio (solvency)

Answer 23

Total debt/(total debt+total shareholder equity)

Percentage of a company capital represented by debt

The lower the better

Question 24

Debt to ebitda (solvency)

Answer 24

Total debt/ebitda

How manu years it would take to repay total debt based on earnings before incomes taxes, depreciation, and amortization

The lower the better

Question 25

Interest coverage ratio

Answer 25

Ebit/ interest payments

Number of times a company ebit could cover its interest payments

The higher the better

Question 26

Fixed charge coverage (solvency)

Answer 26

(Ebit+ lease payments)/(interest payments + lease payments)

Measures the number of times a company earnings can cover the company interest and lease payments

Higher the better

Question 27

Operating profit margin

Answer 27

Operating income/ revenue

Operating margin increasing faster than the gross profit margin can indicate improvements in controlling operating cost

Question 28

Pretax margin

Answer 28

EBT/revenue

Is the ratio of pretax income to revenue.

If s company pretax margin is increasingly primarily as a result if increasing amounts of non operating income. The analyst should evaluate whether the jncrease reflects a deliberate change in a company business focus