Ratios

Question 0

Efficiency

Answer 0

Avg. total assets

(Turnover)

Question 1

Profitability

Answer 1

Net earnings
—————- %
Net sales

Question 2

Leverage

Answer 2

Avg. stockholders’ equity

Question 3

Return on equity

Answer 3

Net earnings
—————————— %
Avg. total stockholders’ equity

Question 4

Return on assets

Answer 4

Avg. total assets

Question 5

Inventory turnover

Answer 5

Avg. inventory

Question 6

Number of days’ sales in inventory

Answer 6

Inventory turnover

Question 7

Times interest earned (or interest coverage)

Answer 7

                     Interest expense

Question 8

Working capital

Answer 8

Current assets - current liabilities

Question 9

Current ratio

Answer 9

Current liabilities

Question 10

Cash flow to net income ratio

Answer 10

Net earnings

Question 11

Free cash flow

Answer 11

(Net cash provided by operating activities) - (net cash paid to purchase property, plant, equipment) - (dividends paid)

Question 12

Dividend payout %

Answer 12

Net earnings

Question 13

Straight line depreciation

Answer 13

         Service life

Question 14

Double Declining Method

Answer 14

Depreciation rate= 2/service life

Expense = book value x depreciation rate

The final year’s depreciation expense is whatever makes the book value equal the expected residual value.

Question 15

Activity-Based Depreciation

Answer 15

Asset cost - residual value
Depreciation= ——————————–
Rate Total expected usage
(usually miles)

Expense=depreciation rate x usage

(An asset can never be depreciated beyond its expected residual value)