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29 Cards in this Set
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What are the two liquidity ratios

1) Current Ratio
2) Quick Ratio 

What is the current ratio

Current Assets/Current Liabilities


What is the Quick Ratio

Current assetsinventory/liabilities


Why do we subtract inventory in the Quick Ratio

to see if the company can still meet its obligations should not more stock be sold.


The Quick ratio is also called?

The Acid Test Ratio


The current Ratio is also called?

The Working capital Ratio


If current Ratio marches other players in the market and the Quick Ratio is below market value what does this indicate to management

The the company may be carrying too much stock


What is Gross Profit

Sales  COS


How do you calculate Gross Profit Margin

Gross Profit/Revenue


What dose the Gross Profit Margin tell management

It tell use the ratio of profits to COGS  how much of every dollar of revenue is used to cover COGS


What are the two important ratios for Return on Investment (ROI)

1) ROTA
2) ROE 

What is ROTA

Return on Total assets, what return on the profits from the total assets used
ROTA = EBIT/TA (TA=CA+FA) 

How is ROTA related to Profit Margin and Sales to TA

The Profit Margin and Sale to TA drive the ROTA


How does Profit margin and Sale to TA drive ROTA

E,g
Profit Margin = EBIT/Sales (revenue) Asset turn = Sales/TA ROTA = EBIT/TA ROTA = 14/100 = 14% PM = 14/200 = 7% RA = Sales/TA = 2 times ROTA = PM (7%)*RA(2 times) = 14% 

How can you improve profit margin

1) Reduce the driving costs
2) Increase volume 

What are the capital structure ratios

1) FA to CA ratio
2) Debt Ratio 3) Times interest earned 

How do you calculate the FA to CA Ratio and what does it tells us

FA/CA ratio of investment between FA and CA assets


How do you calculate the debt ratio

Debt Ratio = Total Debt/total equity
or Total Debt/TA lots of interpretations of this one 

How do you calculate Times interest earned and what does it tell us about a company

TIE=EBIT/interest
tells the number of times the interest could be paid for EBIT  gives us a indication of the gearing of the company 

What are the efficiency ratios

1) Inventory turnover
2) Average collection period 3) Fixed Asset turnover 

How is inventory turnover calculated

IT= COGS/inventory  to calculate number of weeks * by 52 and days then by 7


How is the average collection period calculated

ACP=Debtors/revenue/365 to give you days


How is fixed asset turnover calculated

FAT= Revenue/Fixed asset/365


What are the basic stock market ratios

1) Earnings per share (EPS)
2) Price/Earnings ratio (PE) 3) Dividend yield 4) Dividend Cover 

How do you calculate EPS and what does it tell us

EPS= EAT/no of shares
After tax beacuse shareholders have the last claims of profits. It tells us about growth of company not about profit, if EPS increases it tells us about the companies progress year on year.Investor look for stable growth, if its erratic this can put investors off 

How is Price/Earnings ratio calculated

PE= Market price of shares/EPS
EPS= EAT/No. of shares 

How is dividend per share calculated

Dividend/No. of shares


How is Dividends cover calculated

EPS/DPS


How is dividend yield calculated

DPS/No. of shares
