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35 Cards in this Set
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Firm's ability to pay off debts that are maturing within a year |
Liquidity ratios |
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How efficiency the firm is using its asset |
Asset management ratios |
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Firm's ability to finance its asset as well as to repay its long term debt |
Debt management ratios |
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How profitably the firm is operating and utilizing its assets |
Profitability ratios |
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Bring in the stock price and give us an idea of what investors think about the firm and its future prospects |
Market value ratios |
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Is one that trade in a active market and thus can be quickly converted to cash at the going market price. |
Liquid asset |
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Ratios that show the relationship of a firm's cash and other current assets to its current liabilities |
Liquidity ratios |
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It indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future |
Current ratio |
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The second liquidity ratio |
Quick or acid test ratio |
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It measures how effectively the firm is managing its assets |
Asset management ratio |
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These ratio show how many times the particular asset is "turned over" during the year |
Turnover ratio |
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It indicate the average length of time the firm must wait after making a sale before it receives cash |
Days sales outstanding ratio |
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Other term for DSO ratio |
Average collection period ACP |
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Term that originated many years ago with the old yankee peddler who would load up his wagon with pots and pans |
Turnover |
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Measures how effectively the firm uses its plant and equipment |
Fixed asset turnover ratio |
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Measure the turnover of all firm's assets |
Total assets turnover ratio |
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A set of ratios that measures how effectively a firm manages its debt |
Debt management ratio |
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Two reasons for the levering effect |
Interest is deductible Rate of return on assets exceed the interest rate on debt |
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Measures the percentage of funds provided by the creditors |
Debt ratio |
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The two debt ratios |
Debt-to-capital ratio Debt-to-equity ratio |
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Measures the firm's ability to meet its annual interest payment |
Time-interest-earned ratio |
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A group of ratios that show the combined effects of liquidity, asset management and debt on operating results |
Profitability ratio |
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Give the operating profit per dollars of sales |
Operating margin |
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This ratio measures net income per dollar of sales |
Profit margin |
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The ratio of net income to total assets |
Return on total asset |
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This ratio indicates the ability of the firm's assets to generate operating income |
Basic earning power |
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Measures the rate of return on common stockholders' investment |
Return on common equity |
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Ratios that relate the firm's stock price to its earning and book value per share |
Market values ratios |
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shows the dollar amount investors will pay for $1 of current earnings. |
Price/earnings ratio |
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The ratio of a stock's market price to its book value |
Market/book ratio |
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A formula that shows that rate of return on equity can be found as the product of profit margin, total assets turnover and the equity multiplier. |
DuPont Equation |
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It shows the relationships among the asset management, debt management and profitability ratios. |
DuPont Equation |
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It tell us how many times the profit margin is earned each year. |
Multiplier |
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The process of comparing a particular company with a set of benchmarking companies |
Benchmarking |
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An analysis of a firm's financial ratios over time; used to estimate the likelihood of improvement or deterioration in its financial condition |
Trend analysis |
