Ratios- Liquidity/ Solvency and Operational Flashcards
Name 5 Asset measurement ratios
ROA ( Return on Asset
PM (Profit Margin)
TAT (Total Asset Turnover )
EP ( Expense Percentage)
AT ( Asset Turnover)
ROA
1) Return on Asset
= NI/ Avg Total Asset
PM
1) Profit Margin
= NI / Sales
TAT
1) Total Asset Turnover
= Sales / Avg Total Assets
EP
1) Expense Percentage
= Various Expenses/ Sales
Name 2 ST Liquidity Ratios
1) Current Ratio
2) Quick Ratio
Name 3 LT Solvency
1) Debt / Equity
2) Interest
3) Coverage
Name 2 Equity ratios
1) ROE
2) Leverage
ROE
1) Return on Equity
= NI/ Avg Shareholder’s equity
Leverage
= Avg Total Asset / Avg S/H Equity
Name 2 Major Liquidity Measures
1) Working Capital
2) Working Capital Ratio ( also known as “Current Ratio”
WC
1) Working Capital
= CA - CL
WCR
1) Working Capital Ratio
= CA/ CL
Name 4 types of liquidity ratios
1) Acid Test Ratio
2) Securities Defensive-Interval Ratio
3) Times Interest Earned Ratio
4) Times Preferred Dividend Earned Ratio
ATR
1) Also known as Quick Ratio
2) Acid Test Ratio
3) measures the quantitative relationship between highly liquid assets and current liabilities in terms of the “number of times“ that cash and assets that can be converted quickly to cash cover current liabilities.
= ( Cash + (Net) Receivables + Marketable Securities / CL
SDIR
1) Securities Defensive-Interval Ratio
2) measures the quantitative relationship between highly liquid assets and the average daily use of cash in terms of the number of days that cash and assets can be quickly converted to support operating costs.
= ( Cash + (Net) Receivables + Marketable Securities / Avg Daily Cash Expenditures
TIER
1) Times Interest Earned Ratio
2) measures the ability of current earnings to cover interest payments for a period.
= ( NI + Interest Expense + Income Taxes)/ Interest Expense
TPDER
1) Times Preferred Dividend Earned Ratio
2) measures the ability of current earnings to cover preferred dividends for a period.
= NI / Annual Preferred Dividend Obligation
Names 5 Operational Activity Ratios
1) Accounts Receivable Turnover
2) Number of Days’ Sales in Average Receivables
3) Inventory Turnover
4) Number of Days’ Supply in Inventory
5) Operating Number of Cycle
ART
1) Accounts Receivable Turnover
2) measures the number of times that accounts receivable turnover (are incurred and collected) during a period. Indicates the quality of credit policies (and the resulting receivables) and the efficiency of collection procedures.
= (Net) Credit Sales / Average ( Net) Accounts Receivable
NODSIAR
1) Number of Days’ Sales In Average Receivables
2) measures the average number of days required to collect receivables; it is a measure of the average age or receivables.
= ( measurement of business days or year ) / ART
IT
1) Inventory Turnover
2) measures the number of times that inventory turnover (is acquired and sold or used) during a period. Indicates over or under stocking of inventory or obsolete inventory.
= COGS / Avg Inventory
NODSII
1) Number of Days Supply in Inventory
2) measures the number of days inventory is held before it is sold or used. Indicates the efficiency of general inventory management.
= ( measurement of business days or year ) / IT
ONOC
1) Operating Number of Cycle
2) measures the average length of time to invest cash in inventory, convert the inventory to receivables, and collect the receivables; it measures the time to go from cash back to cash.
= Number of Days’ Sale in A/R + Length Cycle Number of Days’ Supply in Inventory
