Ratios! Flashcards
Current Ratio L
Current Assets / Current Liabilities
Measures: Ability of a company to pay off current debt with current assets
Quick Ratio L
(Cash + S/T Investments + A/R) / Current Liabilities
Measures: Safety margin to cover current liabilities
A/R Turnover -> Avg Days To Collect L
Avg A/R / (Net Credit Sales / 365)
Measures: efficiency of credit granting & collections
How able your customers are to pay you
# of days it takes to collect
Inventory Turnover L
CoGS / Avg Inventory
Day’s Sales L
Net Credit Sales / 365
Avg Days To Sell L
365 / Inventory Turnover
Measures: how many times per year Avg inventory has been purchased & sold
Gross Profit Margin %
Gross Profit / Net Sales
Measures difference made on items sold vs CoGS. Cents per dollar
Operating Margin %
Operations Income / Net Sales
Measures how much is made after covering operating costs
Profit Margin %
Net Income / Net Sales
Measures profit per dollar
ROA (Assets)
(Net Income + (Interest Exp (1-tax rate)) / Avg Total Assets
Measures ability to utilize assets effectively
ROE (Equity)
Net Income / Avg Stockholders Equity
Measures income earned related to investments made by owners
Debt/Equity
Total Liabilities / Total Equity
or
Debt / Net Assets
Measures debt proportion to equity
High number = more risk
Times Interest Earned
(Net Income + Interest Exp + Income Tax) / Interest Exp
Measures income generated to interest obligation
Higher = better
DuPont Analysis
ROA = Net Profit Margin X Total Asset Turnover
Adjust Net Income or Avg Total Sales
ROE = ROA X Financial Leverage
Financial Leverage
Avg Assets / Avg Stockholders Equity
