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29 Cards in this Set
- Front
- Back
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What are the two liquidity ratios
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1) Current Ratio
2) Quick Ratio |
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What is the current ratio
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Current Assets/Current Liabilities
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What is the Quick Ratio
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Current assets-inventory/liabilities
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Why do we subtract inventory in the Quick Ratio
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to see if the company can still meet its obligations should not more stock be sold.
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The Quick ratio is also called?
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The Acid Test Ratio
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The current Ratio is also called?
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The Working capital Ratio
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If current Ratio marches other players in the market and the Quick Ratio is below market value what does this indicate to management
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The the company may be carrying too much stock
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What is Gross Profit
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Sales - COS
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How do you calculate Gross Profit Margin
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Gross Profit/Revenue
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What dose the Gross Profit Margin tell management
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It tell use the ratio of profits to COGS - how much of every dollar of revenue is used to cover COGS
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What are the two important ratios for Return on Investment (ROI)
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1) ROTA
2) ROE |
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What is ROTA
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Return on Total assets, what return on the profits from the total assets used
ROTA = EBIT/TA (TA=CA+FA) |
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How is ROTA related to Profit Margin and Sales to TA
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The Profit Margin and Sale to TA drive the ROTA
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How does Profit margin and Sale to TA drive ROTA
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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% |
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How can you improve profit margin
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1) Reduce the driving costs
2) Increase volume |
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What are the capital structure ratios
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1) FA to CA ratio
2) Debt Ratio 3) Times interest earned |
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How do you calculate the FA to CA Ratio and what does it tells us
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FA/CA ratio of investment between FA and CA assets
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How do you calculate the debt ratio
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Debt Ratio = Total Debt/total equity
or Total Debt/TA lots of interpretations of this one |
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How do you calculate Times interest earned and what does it tell us about a company
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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 |
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What are the efficiency ratios
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1) Inventory turnover
2) Average collection period 3) Fixed Asset turnover |
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How is inventory turnover calculated
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IT= COGS/inventory --- to calculate number of weeks * by 52 and days then by 7
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How is the average collection period calculated
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ACP=Debtors/revenue/365 to give you days
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How is fixed asset turnover calculated
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FAT= Revenue/Fixed asset/365
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What are the basic stock market ratios
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1) Earnings per share (EPS)
2) Price/Earnings ratio (PE) 3) Dividend yield 4) Dividend Cover |
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How do you calculate EPS and what does it tell us
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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 |
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How is Price/Earnings ratio calculated
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PE= Market price of shares/EPS
EPS= EAT/No. of shares |
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How is dividend per share calculated
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Dividend/No. of shares
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How is Dividends cover calculated
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EPS/DPS
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How is dividend yield calculated
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DPS/No. of shares
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