Ratios Flashcards
What do Liquidity Ratios measure?
measures of a firm’s short term ability to pay maturing obligations
What do Activity Ratios measure?
measures how effectively an enterprise is using its assets
What do Profitability Ratios measure?
the financial performance of an enterprise for a given period
What do Investor Ratios measure?
measures that are of interest to investors
What do long-term debt-paying ability ratios (or coverage ratios) measure?
measures of security for long-term creditors/investors
Inventory turnover
Cost of Goods Sold / Average Inventory
measure how effectively an entity employs its resources
Return on Assets
Net Income / Average Total Assets
Accounts Receivable Turnover
Net Credit Sales / Average Net Receivables
Average number of days sales in inventory is defined as?
365 days per year divided by the inventory turnover.
Liquidity ratios and coverage ratios focus on?
Balance sheet account balances
Income statement information is primarily used for?
Profitability analysis
Current Ratio (working capital ratio)
Current Assets / Current Liabilities
Working Capital?
Current Assets - Current Liabilities
Acid-test Ratio
Cash equivalents + Marketable Securities + Accounts Receivable / Current Liabilites
Accounts Receivable Turnover in Days
365 / Receivable Turnover (net credit sales/avg net receivables)
Return on Assets
Net Income / Average total assets
Return on Equity
Net Income - Preferred Dividends / Average Common Equity
Return on Investment
Net Income + Interest Expense (1 - tax rate) / Average (long term liabilities + equity)
Net Operating Margin (% percentage)
Net Operating Income / Net Sales or Operating Profit/Revenue
Net Profit Margin
Net Income / Net Sales
Gross (Profit) Margin Percentage
Sales - COGS / net sales
Debt to Equity
Total Liabilities / Common Stockholders Equity
How to calculate upper deviation rate for ATTRIBUTE SAMPLING?
Sample Deviation Rate + Allowance for Sampling Risk = Upper Deviation Rate
Mean - Per - Unit Estimation for VARIABLE sampling?
Average Sample Value X Number of Items in Population = Point Estimate
uses average value of items in sample to estimate the true population value
Ratio Estimation for VARIABLE sampling?
Selected Items True Value / Selected Items Book Value X Population Book Value = Point Estimate
uses the ratio of audited (correct) values of items to their book value to estimate true population value, Ratio estimation is most effective if there is a correlation between book values and audit amount
Difference Estimation for VARIABLE sampling?
Step 1: Calculate Projected Error = ((BV of Sample - Audit Val of Sample) / # of items audited)*population items
Step 2: Calculate Point Estimate = Total BV of Population - Projected Error
uses the average difference between audited (correct) values of items and their book values to estimate true population value
Sampling Interval is determined how PPS (probability proportional to size)?
Sampling Interval = Tolerable misstatement / Reliability factor (from table)
Sample size is determined PPS?
Sample Size = Recorded amount of the population / sampling interval (from above)
