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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 assets-inventory/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