Ratios/Calculations (deprecation, etc) Flashcards
Calculate AR Turnover
AR Turnover = Net credit sales / average accounts receivable
Calculate Days Purchases in AP Ratio (DPAPR)
Average (AP/ (COGS + Changes in Inventory)) * 365
Basic EPS
Net Income / weighted average common shares outstanding (Net Income must be reduced by preferred cumulative dividends)
Diluted EPS
Adjusted income available to common shares / (weighted average common shares + additional common shares from conversion)
When will basic EPS equal Diluted EPS
When corporation only has stock and nonconvertible common stock
Weighted Average Common Stock
Shares outstanding + (Sold Shares * Months owned / 12) (8000 shares sold on 4/1 would be 8,000*9/12)
Form 10-K
Annual SEC report that provides a comprehensive picture of a company’s business and financial condition, including audited financial statements
Return on Equity Ration (ROE)
ROE = Profit margin × Asset turnover × Leverage:
Net income - Preferred dividends Sales Average assets ROE = -------------------------------- x -------- x ---------------------
Sales Average Average common equity
assets
Net income - Preferred dividends
= --------------------------------
Average common equity
Integrating Mechanisms
Integrating mechanisms connect the information, tasks, and resources with the work groups in the organization. The major integrating mechanisms include:
general management systems,
increasing coordination potential, and
reducing the need for coordination.
When is an organization considered a governmental organization
An organization is a government if “a controlling majority of the members of the organization’s governing body” are appointed or approved “by officials of one or more state or local governments.
How should a nongovernmental not-for-profit entity report depreciation expense in its statement of activities?
All expenses reported on the statement of activities by a not-for-profit are reported as decreases in net assets without donor restrictions. Although not requiring a cash payment, depreciation is an expense.
Gross Margin Ratio
(Unit Price − Unit Cost) × Number of Units; available only to the firm’s management.
Evaluates Companies Profitability
Liquidity Ratios
Liquidity refers to the availability of firm resources to meet short-term obligations or liabilities through cash payments. These ratios focus on the timing of cash inflows/outflows, as well as the balance of current asset and liability accounts. The current ratio and the quick ratio are the best overall measures of liquidity, as they measure the relationship of current assets to current liabilities. The current ratio is defined as current assets divided by current liabilities. Whereas, the quick ratio is defined as (cash + near-term investments + current receivables) divided by current liabilities.
Current Ratio
Quick Ratio
Cost of carrying additional investment in AR when changing credit policies
Cost of holding accounts receivable before credit policy change: $360,000 sales ÷ 360 days = $1,000 average daily sales
30 days average collection period = $30,000 average A/R balance
12% required rate of return = $3,600 annual interest
Cost of holding accounts receivable after credit policy change: $432,000 sales ÷ 360 days = $1,200 average daily sales
40 days average collection period = $48,000 average A/R balance
12% required rate of return = $5,760 annual interest
$5,760 - $3,600 = $2,160 additional annual interest on holding A/R balance
Price to Sales Ratio
The price-to-sales (P/S) ratio is a valuation ratio that compares a company’s stock price to its revenues. It is an indicator of the value placed on each dollar of a company’s sales or revenues.
Managers are more likely able to manipulate earnings, valuations of assets, and liabilities than they are able to manipulate sales revenue, as the latter is driven by customers who are external parties. Sales are more reliable as a measure.
