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Accounting > Ratios > Flashcards

Ratios Flashcards

Accounting ratios

1
Q

Asset turnover ratios

A
  • Total asset turnover ratio
  • Fixed asset turnover ratio
  • Inventory turnover ratio
  • Receivable turnover ratio
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2
Q

Liquidity ratios

A
  • Current ratio
  • Quick ratio
  • Cash ratio
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3
Q

Profitability ratios

A
  • Return on equity (ROE)
  • Return on assets (ROA)
  • Gross profit margin ratio
  • Net profit margin ratio
  • Earnings per share ratio
  • Quality of earnings ratio
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4
Q

Solvency ratios

A
  • Times interest earned ratio
  • Cash coverage ratio
  • Debt-to-equity ratio
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5
Q

Market ratios

A
  • Price/Earnings ratio
  • Dividend yield ratio
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6
Q

Return on Equity (ROE)

A

Net earnings / Average shareholder’s equity

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7
Q

Return on assets (ROA)

A

Net earnings / Average total assets

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8
Q

Gross Profit margin ratio

A

Gross profit / Net sales

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9
Q

Net profit margin ratio

A

Net earnings / Net sales

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10
Q

Earnings per share ratio (EPS)

A

Net earnings available to common shareholders / Average number of common shares outstanding

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11
Q

Quality of earnings

A

Cash flow from operating activities / Net earnings

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12
Q

Total asset turnover ratio

A

Net sales / Average total asset

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13
Q

Fixed asset turnover ratio

A

Net sales / Average net fixed assets

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14
Q

Receivable turnover ratio

A

Net credit sales / Average accounts receivable

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15
Q

Receivable turnover ratio - Converted to days (Average days to collect receivables)

A

Days in a year / Receivable turnover ratio

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16
Q

Inventory turnover ratio

A

Cost of sales / Average inventory

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17
Q

Inventory turnover ratio - Converted to days (Average days to sell Inventory)

A

Days in a year / Inventory turnover ratio

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18
Q

Current ratio

A

Current assets / Current liabilities

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19
Q

Quick ratio

A

Quick assets / Current liabilities

20
Q

Quick assets

A

Quick assets are defined as cash and near-cash assets, this being short term investments and net accounts receivable. Inventory and other current assets are EXCLUDED from quick assets.

21
Q

Cash ratio

A

Cash + Cash equivalents / Current liabilities

22
Q

Times interest earned ratio

A

Net earnings + Interest expense + Income tax expense / Interest expense

23
Q

Cash coverage ratio

A

Cash flows from operating activities / Interest paid

24
Q

Debt-to-Equity ratio

A

Total liabilities / Shareholders’ equity

25
Q

Price/Earnings ratio

A

Current market price per share / Earnings per share

26
Q

Dividend yield ratio

A

Dividends per share / Market price per share

27
Q

Return on equity (Definition)

A

Return on equity relates net earnings to the investment made by the owners. This ratio indicates how much eanings were generated for every dollar invested by the owners.

28
Q

Return on assets (Definition)

A

This ratio compares net earnings to the total assets used to generate the net earnings. Many analysts consider this ratio as the best overall measure of a company’s profitability.

29
Q

Gross profit margin ratio (Definition)

A

This ratio reflects gross profit as a percentage of sales. If not shown separately on a company’s statement of earnings, gross profit is computed by subtracting cost of sales from net sales.

30
Q

Net profit margin ratio (Definition)

A

This ratio reflects net earnings as a percentage of sales. It is used as a measure of operating efficiency.

31
Q

Earnings per share (Definition)

A

The earnings per share ratio is a measure of return on investment that is based on the number of common shares outstanding. Managers can significantly alter EPS by selling common shares or repurchasing common shares.

32
Q

Quality of earnings (Definition)

A

Most financial analysts are concerned about the quality of a company’s earnings because the use of some accounting procedures can result in higher earnings numbers, such as using a longer estimated useful life for depreciation.

33
Q

Total asset turnover (Definition)

A

This ratio captures how well a company uses its assets to generate revenue.

34
Q

Fixed asset turnover (Definition)

A

This ratio measures a company’s ability to generate sales given its investment in fixed assets.

35
Q

Receivable turnover ratio (Definition)

A

This ratio measures how quickly a company collects its accounts receivable.

36
Q

Average days to collect receivables (Definition)

A

The receivable turnover ratio often is converted to reflect the number of days, on average, it takes a company to collect its receivables.

37
Q

Inventory turnover ratio (Definition)

A

This ratio measures how quickly a company sells its inventory.

38
Q

Average days to sell inventory (Definition)

A

The inventory turnover ratio often is converted to reflect the number of days, on average, it takes a company to tell it’s inventory

39
Q

Current ratio (Definition)

A

The current ratio measures the ability of the company to pay current debts as they become due.

40
Q

Quick ratio (Definition)

A

This ratio is more stringent test of liquidity than the current ratio. It measures the company’s immediate ability to pay current debts as they become due.

41
Q

Cash ratio (Definition)

A

This ratio measures the adequacy of available cash.

42
Q

Times interest earned ratio (Definition)

A

This ratio compares the earnings available to cover interets in a periof to a company’s interest obligation for the same period. This ratio indicates a margin of protection for creditors.

43
Q

Cash coverage (Definition)

A

Some analysts believe taht the times interest earned ratio is flawed because interets is paid in cash, not with earnings. These analysts prefer to use the cash coverage ratio, which measures the compnay’s ability to meet its periodic interest payments through the cash generated from operations.

44
Q

Debt-to-Equity ratio (Definition)

A

This ratio expresses a company’s debt as a proportion of its shareholders’ equity.

45
Q

Price/Earnings ratio (Definition)

A

This Price/Earnings ratio measures the relationship between the current market price per share and its earnings per share.

46
Q

Dividend yield ratio (Definition)

A

This ratio reflects the return on investment solely due to the dividends a company pays. It is often used to compare the dividend paying performance of different investment alternatives.

Accounting (1 decks)

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