Ratios Flashcards
List the formula for number of days’ sales in accounts receivable (AR).
365/ AR turnover
List the formula for determining operating cycle length.
Days’ sales in accounts receivable + Days’ supply in inventory
List the formula for times preferred dividend.
Net income / Annual preferred dividend obligation
List the cash availability or interval ratio formula.
(Cash + Net receivables + Marketable securities) / Average daily cash expenditures
List the formula for times interest earned.
(Net income + Interest expense + Income tax expense) / Interest expense
What are the general types of ratios?
Liquidity/Solvency
Operational activity
Profitability
Equity/Investment leverage
What is financial statement ratio analysis?
The development of quantitative relationships between various elements of a firm’s financial statements
List the formula for working capital.
Current assets ‐ Current liabilities
List the formula for the acid test or quick ratio.
(Cash + Net receivables + Marketable securities) / Current liabilities
What do operational activity ratios measure?
They measure the efficiency with which a firm carries out its operating activities.
List the working capital ratio formula.
Current assets / Current liabilities
List the formula for inventory turnover.
Cost of goods sold (COGS) / Average inventory
List the accounts receivable turnover ratio formula.
Net credit sales / Average net accounts receivable
What do liquidity (or solvency) ratios measure?
They measure the ability of the firm to pay its debts as they come due.
List the formula for number of days’ supply in inventory
365/ Inventory turnover
What do equity/investment leverage ratios measure?
Measure relative sources of equity and equity value.
List the common stock yield formula.
Dividend per common share / Market price per common share
List the return on common stockholders’ equity formula.
(Net income ‐ Current‐period preferred dividend obligation) / Average common stockholders’ equity
List the return on owner’s equity formula.
Net income / Average stockholders’ equity
List the price to earnings ratio formula.
Market price for a common share / Earnings per share (EPS)
List the profit margin formula.
Net income/Net sales
List the per share common stock dividend pay out rate formula.
Cash dividends per common share / Earnings per share (EPS)
What do profitability ratios measure?
Aspects of a firm’s operating (income/loss) results on a relative basis
List the debt ratio formula.
Total liabilities / Total assets
List the book value per common stock ratio formula.
Common shareholders’ equity / Number of outstanding common shares
List the total common stock dividend payout rate formula.
Cash dividends to common shareholders / Net income to common shareholders
List the return on total assets formula.
(Net income + Interest expense (net of tax)) / Average total assets
List the debt to equity ratio formula.
Total liabilities / Total shareholders’ equity
List the book value per preferred share ratio formula.
Preferred shareholders’ equity (including dividends in arrears) / Number of outstanding preferred stocks
List the owner’s equity ratio formula.
Shareholders’ equity / Total assets