Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

BEC > Section 3 - Ratios > Flashcards

Section 3 - Ratios Flashcards

1
Q

Working Capital

Formula & Purpose or Use?

(Liquidity Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Current Ratio

Formula & Purpose or Use?

(Liquidity Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Quick or acid-test ratio

Formula & Purpose or Use?

(Liquidity Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Current cash debt coverage ratio

Formula & Purpose or Use?

(Liquidity Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Receivable Turnover

Formula & Purpose or Use?

(Liquitidy Ratio)

A

Avg. Accounts Receivable = (Beg. A/R + Ending A/R) / 2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Inventory Turnover

Formula & Purpose or Use?

(Activity Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Asset Turnover

Formula & Purpose or Use?

(Activity Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Number of Days ‘ supply average inventory

Formula & Purpose or Use?

(Activity Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Number of Day’s Sales in Average Receivables

Formula & Purpose or Use?

(Activity Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Profit Margin on Sales (Gross Margin)

Formula & Purpose or Use?

(Profitability Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Rate of Return on Assets

Formula & Purpose or Use?

(Profitability Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Rate of Return on Common Stock Equity (Return on Equity)

Formula & Purpose or Use?

(Profitability Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Earnings Per Share

Formula & Purpose or Use?

(Profitability Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Price-Earnings Ratio

Formula & Purpose or Use?

(Profitability Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Payout Ratio

Formula & Purpose or Use?

(Profitability Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Debt to Equity

Formula & Purpose or Use?

(Coverage Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Debt to Total Assets

Formula & Purpose or Use?

(Coverage Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Times interest Earned

Formula & Purpose or Use?

(Coverage Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Cash Debt Coverage Ratio

Formula & Purpose or Use?

(Coverage Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Book Value Per Share

Formula & Purpose or Use?

(Coverage Ratio)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Formula: Gross Margin

A

Gross Profit / Net Sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Formula: Operating Profit Margin

A

Operating Profit / Net Sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Formula: Free Cash Flow

A

Net operating profit after taxes (NOPAT)

+ Depreciation

+ Amorization

  • Capital Expenditures (CAPEX)
  • Net Increase in Working Capital
24
Q

Formula: Residual Income

A

Operating Profit - Interest on Investment

Interest Investment = Invested Capital x Required Rate of Return

25
Q

Formula: Economic Value Added

A

EVA = Net Operating Profit After Taxes (NOPAT) - Cost of Financing

Cost of Financing = (Total Assets - Current Liabilities) x WACC

26
Q

Formula: Economic Rate of Return on Common Stock (Total Return)

A

( Dividends + Change in Price ) / Beginning Price

27
Q

Formula: Return on Investment (Based on Assets)

A

Net Income / Total Assets (or Average Invested Capital)

28
Q

Formula: DuPont ROI analysis

A

ROI = Return on Sales x Asset Turnover

Return on Sales = Net Income / Sales

Asset Turnover = Sales / Total Assets

29
Q

Formula: Return on Assets

A

Net Income / Average Total Assets

Average Total Assets = (Beg. Total Assets + Ending Total Assets) / 2

30
Q

Formula: Return on Equity

A

Net Income / Avg. Common Stockholder’s Equity

Avg. Common Stockholder’s equity = Stockholder’s Equity - Preferred Stock Liquidation Value

31
Q

Formula: Fixed Asset Turnover

A

Sales / Average net fixed assets

*Remember that net fixed assets is after subtraction of accm. depreciation

32
Q

Formula: Market Capitalization

A

Common Stock Price per share x Common Stock Shares Outstanding

33
Q

Formula: Market/Book Ratio

A

Can be calculated in two ways:

  1. Common Stock price per share / Book Value per share
  2. Market Capitalization / Common Stockholder’s Equity
34
Q

Cash Conversion Cycle (CCC)

  1. Formula?
  2. What does it meausure?
  3. What is management’s goal for CCC?
  4. What is the meaning of a large CCC?
A
  1. Formula:

ICP (Inventory Conversion Period)

+ RCP (Accounts Receivable Collection Period)

  • PDP ( Accounts Payable Deferral Period)

= CCC

  1. It measures the # of days from when a busines pays for its inputs to then the business collects cash from the resulting sales of finshed goods.
  2. Shorten CCC to minimize their need for financing
  3. A large CCC would mean that the business needs to use more financing

Formula =

35
Q

Inventory Converion Period (ICP)

  1. Formula?
  2. What does it measure?
A
  1. ICP = Average Inventory / Cost of Goods per day (or Sales per day)

Avg. Inventory = (Beg. Inventory + End. Inventory ) / 2

  1. The average of number of days required to convert inventory to sales
36
Q

Accounts Receiable Collection Period (RCP)

  1. Formula?
  2. What does it measure?
A
  1. Average Accounts Receivable / Average Credit sales per day
  2. the average number of days required to collect account receiable
37
Q

Accounts Payable Deferral Period (PDP)

  1. Formula?
  2. What does it measure?
A
  1. Average Payables / Purchases per day (or COGS / 365)
  2. the average numbers of days b/w buying inventory and paying for that inventory
38
Q

Economic Order Quantity (EOQ)

  1. Formula?
  2. What does it measure?
A
  1. How much you should order or purchase?

Formula =

39
Q

Formula: Reorder Point

A
40
Q

Payback Period

  1. Formula?
  2. What does it measure?
  3. Disavantages? (2)
A
  1. the length of time it takes for an initial cash outlay for the investment to be recovered in cash
  2. It does not take into account (1) project’s total profitability or (2) Time value of Money

Formula =

41
Q

Internal Rate of Return

  1. Formula
  2. What does it measure?
  3. Advantages? (3)
  4. Disadvantages? (2)
A
  1. the discount rate at which the net present value is zero. (alternatively, the rate of interest that equates the present value of cash outflows & the present value of cash inflows)
  2. (1) Adjusts for the time value of money; (2) The hurdle rate is based on market interest rates for smiliar investments; (3) the results tend to be a little more intuitive than the results of the net present value method
  3. (1) There may be no unique internal rate of return for a particular project ( or there may be multiple returns) (2) theyre may be no real discount rate that equates the project’s NPV to zero

Formula =

42
Q

Accounting Rate of Return

  1. Formula?
  2. What does it do?
  3. Advantages?
  4. Disadvantages? (3)
A
  1. computes an approximate rate of return that does not take into account the time value of money and does not use actual cash flows
  2. Easy to compute & understand
  3. (1) Does not take into account the time value of money (2) Does not take into account differences in risk across investments (no project risk) (3) results are affected by the depreciation method used

Formula =

43
Q

Net present value (NPV)

  1. Formula ?
  2. What is it?
  3. Advantages? (4)
  4. Disadvantages? (2)
A
  1. the excess of the present value of the cash inflows over the present value of the outflows
  2. (1) it takes into account the time value of money (2) takes into account risk (3) takes into account total profitability (4) may be readily interpreted as the changes in owners’ wealth if a project is carried out
  3. (1) computations not simple and/or intuitie (2) does not take into account that managers may actually not follow the originally scheduled investments (or expenses)

Formula=

44
Q

Annual Financial Costs (AFC)

  1. Formula?
  2. what does it measure?
A
  1. it calculates the cost of NOT taking the discount
45
Q

How do you calculate the “Cost of a Loan” ?

A

* remember Compensating Balances are demand deposits (% of loans) that lenders may require as a condition for receiving loans.

46
Q

Formula: Current Yield

A

Annual Interest Paid / Bond Market Price

47
Q

Formula: Effective Annual Interest (EAR)

A
48
Q

Operating Leverage

  1. Formula
  2. What does it measure?
A
  1. measures how the size of the business’s fixed costs affects its performance when revenues change.

Formula =

49
Q

the Degree of Financial Leverage (DFL)

  1. Formula?
  2. What does it measure?
A
  1. measures how much a business relies on debt financing

Formula =

50
Q

Cost of Debt

  1. What is it?
  2. How is it calculated?
A
  1. the after-tax cost of interest payments as measured by yields to maturity.
  2. It can be calculated in two ways:
    (1) Yield to Maturity x ( 1 - Effective Tax Rate)
    (2) (Interest Expense - Tax Deduction for interest ) / Carrying value of debt
51
Q

Cost of Preferred Stock

  1. How is it calculated?
A

Dividend / Net issue price

(the stipulated dividend divided by the net issue price of the stock)

52
Q

Capital Asset Pricing Model (CAPM) (Security Market Line)

A

Risk Free Rate + (Expected Market Rate - Risk Free Rate) x Beta

53
Q

Dividend Yield Plus Growth Rate

  1. Formula
A
54
Q

Cost of New Common Stock

A
55
Q

Residual Income

A

The calculation of residual income is as follows: Residual income = operating income - (cost of capital x operating assets).

BEC (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions