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21 Cards in this Set
- Front
- Back
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finance ratios
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liquid
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how fast a company can generate cash to stay afloat or sustain its operations
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liquidity is measured by two approaches
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1. current assets and current liabilities (net working capital)
2.companies abilities to convert account receivables and other items into cash |
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Current ratio =
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Current assets/Current
liabilities |
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if the current ratio is < 1
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this means it will be delinquent (this year anyway)
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acid test (quick ratio)
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only cash and accounts receivable (not liquidating inventory)
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if you liquidate inventory quickly then you are likely
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compromising on price (depends on market demand)
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average collection period (ACP)
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how long does it take the firm to collect its account receivables
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inventory turnover
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how long does it take the company to change the inventory into sales (cash)
COGS/inventory = inventory turnover |
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operating return on assets
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indicates the leverl of operating profits relative to the firms' total assets
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ORA formula
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operating profits/total assets
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operating profit margin (OPM)
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examines how effective the company is in managing its cost of goods sold and operating expenses that determine the operating profit
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OPM formula
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operating profit/sales
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debt ratio
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how much equity does this company have?
higher this ratio, the riskier the company |
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debt ratio formula
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long term debt/total assets
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return on investment (ROE) formula
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net income/common equity
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return on investment (ROE)
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Are the Firm’s Managers Providing
a Good Return on the Capital Provided by the Shareholders? |
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price/earnings ratio (PE)
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how much percent will you gain if you buy this stock?
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PE formula
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Price per share/Earnings per share
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price/book ratio
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since the company sold those shares for the first time, how much the current price has increased?
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price/book formula
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price pershare/equity book value per share
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