Ratios Flashcards
Inventory Turnover
COGS/Avg Inventory
FIFO
Inventory-costing methods will produce a lower inventory turnover ratio in an inflationary economy.
LIFO
Highest COGS and lowest ending inventory, resulting in a lower inventory turnover.
Profitability ratios
- Gross Margin Ratio
- Return on assets
Times interest earned ratio
=EBIT/Int Expense
Asset utilization
- Inventory turnover
- Receivable turnover
Liquidity Ratio
- Current ratio
- Quick Ratio (acid-test)
Debt utilization
- Debt to total assets ratio
- Debt to equity ratio
Market
- Price to earnings ratio
- Sales to cash flow ratio
Dividend payout ratio
Cash Dividends/Net Income
Return on Sales
Net Operating Profit/Sales
Book value per share
Total shareholders’ Equity/No. of Shares outstanding
(Net Income - Preferred Dividends) /Weighted avg no. of common shares (RE+Common Stock)
True
Gross Profit = 0.3, COGS = 0.7 of Sales
True
Price or market price per share/EPS = P/E ratio
True (This considers only dividends paid on preferred stock and not dividends paid on common stock)
365/AR turnover and AR turnover = Credit sales/Avg AR
True e.g. 365/12
Asset Turnover*Profit Margin
Return on Assets
Net Income/Avg Assets
Return on Assets
AR turnover is calculated considering Credit Sales and not Cash sales
True
Which ratio measures short term solvency?
Current Ratio
Operating Profit Margin
Sales - COGS - general and admin expenses/Sales
Avg days Operating Cycle
=Avg days Sales in AR + Avg days sales in inventories
Return on stockholders equity
=NI-Preferred Dividends / Avg(Common stock+ RE)
FIFO - same result for perpetual and periodic inventory
True
Quick Ratio
(Cash+Marketable securities+AR-Allowance for credit losses)/CL
Quick Ratio
(CA-Inventory-Prepaids)/CL
Price Earnings Ratio is a market ratio
Not a profitability ratio , Market price per share/EPS
Because the A/R equals the net carrying value (A/R less the allowance for credit losses). Because the A/R are reported on the BS, the credit risk is not considered off-balance sheet risk.
Off-balance sheet credit losses are recorded as a liability.
TOTAL DEBT RATIO
TOTAL LIABILITIES/TOTAL ASSETS
DEBT TO EQUITY
TOTAL LIABILITIES/EQUITY
