SU 2: Ratio Analysis

Question 0

Current Ratio

Answer 0

Current Assets/Current Liabilities

Question 1

Net Working Capital

Answer 1

Current assets - Current liabilities

Question 2

Quick (Acid Test) Ratio

Answer 2

Cash + Marketable Securities + Net receivables/Current Liabilities

Question 3

Cash Flow Ratio

Answer 3

Cash flow from operations/Current liabilities

Question 4

Cash Ratio

Answer 4

Cash + Marketable Securities/Current Liabilities

Question 5

Debt Ratio

Answer 5

Total Debt (Liab)/Total Assets

Question 6

Net Working Capital Ratio

Answer 6

Current assets - Current liabilities/Total assets

Question 7

Accounts Receivable Turnover

Answer 7

Net credit sales/Average accounts receivable

Question 8

Days’ Sales Outstanding in Receivables

Answer 8

Days in year/Accounts receivable turnover

Question 9

Inventory Turnover

Answer 9

Cost of goods sold/Average inventory

Question 10

Days’ Sales in Inventory

Answer 10

Days in year/Inventory Turnover

Question 11

Accounts Payable Turnover

Answer 11

Purchases/Average accounts payable

Question 12

Operating Cycle

Answer 12

Days’ sales in receivables + Days’ sales in inventory

Question 13

Cash Cycle

Answer 13

Operating cycle - Days’ purchases in payables

Question 14

Fixed Assets Turnover Ratio

Answer 14

Net Sales/Average net property, plant, and equipment

Question 15

Total Assets Turnover Ratio

Answer 15

Net Sales/Average total assets

Question 16

Total Debt to Total Capital Ratio

Answer 16

Total Debt/Total Capital

Question 17

Debt to Equity Ratio

Answer 17

Total Debt/Stockholders’ equity

Question 18

Long-Term Debt to Equity Ratio

Answer 18

Long-term debt/Stockholders’ equity

Question 19

Debt to Total Assets Ratio (Debt Ratio)

Answer 19

Total Liabilities/Total Assets

Question 20

Times Interest Earned Ratio

Answer 20

EBIT/Interest Expense

Question 22

Earnings to Fixed Charges Ratio

Answer 22

EBIT + Interest portion of operating lease/Interest expense + Interest portion of operating leases + Dividends on preferred stock

Question 23

Cash Flow to Fixed Charges Ratio

Answer 23

Pre-tax operating cash flow/Interest expense + Interest portion of operating leases + Dividends on preferred stock

Question 24

Operating Leverage

Answer 24

Arises from the use of a high level of plant and machinery in the production process, revealed through charges for depreciation, property taxes, etc.

Question 25

Financial Leverage

Answer 25

Arises from the use of a high level of debt in the firm’s financing structure, revealed through amounts paid out for interest

Question 26

Degree of Leverage

Answer 26

Pre-fixed-cost income amount/Post-fixed-cost income amount

Question 27

Degree of Operating Leverage (DOL)- Single-Period Version

Answer 27

Contribution Margin/Operating Income or EBIT

Question 28

Degree of Operating Leverage (DOL)- Percentage-Change Version

Answer 28

% change in operating income or EBIT/% change in sales

Question 29

Degree of Financial Leverage (DFL)- Single-Period Version

Answer 29

Earnings before interest and taxes (EBIT)/Earnings before taxes (EBT)

Question 30

Degree of Financial Leverage (DFL)- Percentage-Change Version

Answer 30

% change in net income/% change in EBIT

Question 31

Return on Assets

Answer 31

Net Income/Total Assets

Question 32

Net Profit Margin

Answer 32

Net Income/Net Sales