Reading 15 - Inventories

Question 1

current ratio

Answer 1

current assets / current liabilities

Question 2

quick ratio

Answer 2

(cash + short term marketable investments + receivables) / current liabilities

Question 3

cash ratio

Answer 3

(cash + short term marketable investments) / current liabilities

Question 4

defensive interval ratio

Answer 4

(cash + short term marketable investments + receivables) / daily cash expenditure

Question 5

receivables turnover ratio

Answer 5

total revenue / average receivables

Question 6

days of sales outstanding (DSO)

Answer 6

number of days in period / receivables turnover ratio

Question 7

inventory turnover ratio

Answer 7

cogs / average inventory

Question 8

days of inventory on hand (DOH)

Answer 8

number of days in period / inventory turnover ratio

Question 9

payables turnover ratio

Answer 9

purchases / average trade payables

Question 10

number of days of payables

Answer 10

number of days in period / payables turnover ratio

Question 11

cash conversion cycle (net operating cycle)

Answer 11

DOH + DSO - Number of days of payables

Question 12

working capital turnover ratio

Answer 12

total revenue / average working capital

Question 13

fixed asset turnover ratio

Answer 13

total revenue / average net fixed assets

Question 14

total asset turnover ratio

Answer 14

total revenue / average total assets

Question 15

gross profit margin

Answer 15

gross profit / total revenue

Question 16

operating profit margin

Answer 16

operating profit / total revenue

Question 17

pretax margin

Answer 17

earnings before tax but after interest / total revenue

Question 18

net profit margin

Answer 18

net income / total revenue

Question 19

operating return on assets

Answer 19

operating income / average total assets

Question 20

return on assets

Answer 20

net income / average total assets

Question 21

return on equity

Answer 21

net income / average shareholder’s equity

Question 22

return on total capital

Answer 22

EBIT / (interest bearing debt + shareholder’s equity)

Question 23

return on common equity

Answer 23

(net income - preferred dividends) / average common shareholder’s equity

Question 24

tax burden

Answer 24

net income / earnings before taxes

Question 25

interest burden

Answer 25

earnings before taxes / EBIT

Question 26

EBIT margin

Answer 26

EBIT / total revenue

Question 27

financial leverage ratio (equity multiplier)

Answer 27

average total assets / average shareholder’s equity

Question 28

total debt

Answer 28

total of interest-bearing short-term and long-term debt, excluding liabilities such as accrued expenses and accounts payable

Question 29

total debt

Answer 29

total of interest-bearing short-term and long-term debt, excluding liabilities such as accrued expenses and accounts payable

Question 30

debt to assets ratio

Answer 30

total debt / total assets

Question 31

debt to equity ratio

Answer 31

total debt / total shareholder’s equity

Question 32

debt to capital ratio

Answer 32

total debt / (total debt + total shareholder’s equity)

Question 33

interest coverage ratio

Answer 33

EBIT / interest payments

Question 34

fixed charge coverage ratio

Answer 34

(EBIT + lease payments) / (interest payments + lease payments)

Question 35

dividend payout ratio

Answer 35

common share dividends / net income attributable to common shares

Question 36

retention rate

Answer 36

1 - payout ratio

Question 37

sustainable growth rate

Answer 37

retention rate * return on equity

Question 38

earnings per share

Answer 38

(net income - preferred dividends) / weighted average number of ordinary shares outstanding

Question 39

book value per share

Answer 39

common stockholder’s equity / total number of common shares outstanding

Question 40

free cash flow to equity (FCFE)

Answer 40

cash flow from operating activities - investment in fixed capital + net borrowing

Question 41

free cash flow to the firm (FCFF)

Answer 41

cash flow from operating activities + interest expense * (1 - tax rate) - investment in fixed capital