Ratios

Question 1

B/S vs. I/S Ratios

Answer 1

must find average for B/S item (Beginning + Ending)/2

Question 2

Types of Ratio Measures

Answer 2

liquidity/solvency, operational activity, profitability, equity/investment leverage

Question 3

Working Capital vs. Working Capital Ratio

Answer 3

Working Capital = CA – CL Working Capital Ratio = CA/CL

Question 4

Acid Test/Quick Ratio

Answer 4

(Cash + Net Receivables + Marketable Securities) / Current Liabilities (Excludes Inventory!)

Question 5

Defensive-Interval Ratio

Answer 5

(Cash + Net Receivables + Marketable Securities) / Avg. Daily Cash Expenditures

Question 6

Average Collection Period

Answer 6

(Days in Year x Avg. A/R) / Credit Sale for Period

Question 7

Times Interest Earned Ratio

Answer 7

(N/I + Interest Expense + Income Tax Expense) / Interest Expense

Question 8

Times Preferred Dividends Earned Ratio

Answer 8

N/I / Annual Preferred Dividend Obligation

Question 9

A/R Turnover

Answer 9

Net Credit Sales / Average Accounts Receivable

Question 10

Avg. Number of Days Sales in Receivables

Answer 10

365 / A/R Turnover

Question 11

Inventory Turnover

Answer 11

COGS / Avg. Inventory

Question 12

Number of Days Supply in Inventory

Answer 12

365 / Inventory Turnover

Question 13

A/P Turnover

Answer 13

Credit Purchases (or COGS + Ending – Begin Inventory) / Avg. Accounts Payable

Question 14

Number of Days Purchases in Payables

Answer 14

365 / Accounts Payable Turnover

Question 15

Capital Turnover

Answer 15

Annual Sales (or Revenue) / Avg. Owner’s Equity

Question 16

Cash Conversion Cycle

Answer 16

Cash Conversion Cycle = Inventory Conversion + A/R Conversion – A/P Conversion

Question 17

Operating Cycle

Answer 17

Inventory Conversion + A/R Conversion

Question 18

Gross Profit vs. Gross Profit Margin

Answer 18

Gross Profit = Sales (or Revenue) – COGSGross Profit Margin = Gross Profit / Net Sales

Question 19

Net Profit Margin

Answer 19

Net Profit Margin = Net Income / Net Sales

Question 20

Return on Total Assets/Investments

Answer 20

Net Income + Interest Expense / Avg. Total Assets or Avg. Total Investments

Question 21

Return on Owner’s Equity

Answer 21

Net Income / Avg. Stockholder’s Equity

Question 22

Return on C/S Equity

Answer 22

Net Income – Preferred Dividends / Avg. Common Stockholder’s Equity

Question 23

Residual Income

Answer 23

Residual Income = Net Income – Required Dollar Return

Question 24

Economic Value Added

Answer 24

Earnings before interest – ((Opportunity Cost) x (L/T Debt + Stockholder’s Equity)

Question 25

EPS (Basic)

Answer 25

Net Income – Preferred Dividends / Weighted Avg. Number of Shares Outstanding

Question 26

Price to Earnings Ratio

Answer 26

Market Price for a Common Share / Earnings Per Share

Question 27

Debt to Equity Ratio

Answer 27

Total Liabilities/Total Shareholder’s Equity

Question 28

Owner’s Equity Ratio

Answer 28

Shareholder’s Equity / Total Assets

Question 29

Debt Ratio

Answer 29

Total Liabilities / Total Assets