Ratios

Question 1

List the formula for working capital.

Answer 1

Current Assets - Current Liabilities.

Question 2

What is financial statement ratio analysis?

Answer 2

The development of quantitative relationships between various elements of a firm’s financial statements.

Question 3

List the Accounts Receivable Turnover ratio formula.

Answer 3

Net Credit Sales / Average Net Accounts Receivable.

Question 4

List the working capital ratio formula.

Answer 4

Current Assets / Current Liabilities.

Question 5

List the formula for determining Operating Cycle Length.

Answer 5

Days’ Sales in Accounts Receivable + Days’ Supply in Inventory.

Question 6

What do operational activity ratios measure?

Answer 6

They measure the efficiency with which a firm carries out its operating activities.

Question 7

List the formula for number of days’ supply in inventory.

Answer 7

365/ Inventory Turnover

Question 8

List the formula for inventory turnover.

Answer 8

Cost of Goods Sold (COGS) / Average Inventory.

Question 9

List the formula for Number of Days’ Sales in Accounts Receivable (AR).

Answer 9

365/ AR Turnover.

Question 10

What do liquidity (or solvency) ratios measure?

Answer 10

Measure the ability of the firm to pay its debts as they come due.

Question 11

List the formula for times preferred dividend.

Answer 11

Net Income / Annual Preferred Dividend Obligation.

Question 12

List the formula for times interest earned.

Answer 12

(Net Income + Interest Expense + Income Tax Expense) / Interest Expense.

Question 13

List the formula for the Acid Test or Quick Ratio.

Answer 13

(Cash + Net Receivables + Marketable Securities) / Current Liabilities.

Question 14

What are the general types of ratios?

Answer 14

Liquidity/Solvency;
Operational Activity;
Profitability;
Equity/Investment Leverage.

Question 15

What do equity/investment leverage ratios measure?

Answer 15

Measure relative sources of equity and equity value.

Question 16

List the debt to equity ratio formula.

Answer 16

Total Liabilities / Total Shareholders’ Equity.

Question 17

List the owner’s equity ratio formula.

Answer 17

Shareholders’ Equity / Total Assets.

Question 18

List the debt ratio formula.

Answer 18

Total Liabilities / Total Assets.

Question 19

List the book value per common stock ratio formula.

Answer 19

Common Shareholders’ Equity / Number of Outstanding Common Shares.

Question 20

List the book value per preferred share ratio formula.

Answer 20

Preferred Shareholders’ Equity (including dividends in arrears) / Number of Outstanding Preferred Stocks.

Question 21

List the price to earnings ratio formula.

Answer 21

Market Price for a Common Share / Earnings Per Share (EPS).

Question 22

List the total common stock dividend payout rate formula.

Answer 22

Cash Dividends to Common Shareholders / Net Income to Common Shareholders.

Question 23

List the per share common stock dividend pay out rate formula.

Answer 23

Cash Dividends per Common Share / Earnings Per Share (EPS).

Question 24

List the common stock yield formula.

Answer 24

Dividend per Common Share / Market Price per Common Share.

Question 25

List the profit margin formula.

Answer 25

Net Income/Net Sales.

Question 26

List the return on total assets formula.

Answer 26

(Net Income + Interest Expense (net of tax)) / Average Total Assets.

Question 27

List the return on common stockholders’ equity formula.

Answer 27

(Net Income-Current Period Preferred Dividend Obligation) / Average Common Stockholders’ Equity.

Question 28

List the return on owner’s equity formula.

Answer 28

Net Income / Average Stockholders’ Equity.

Question 29

What do profitability ratios measure?

Answer 29

Aspects of a firm’s operating (income/loss) results on a relative basis.