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30 Cards in this Set
- Front
- Back
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Provide information about a firm's ability to meet its short-term financial obligations |
Liquidity ratios |
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Ratio of current assets to current liabilities |
Current ratio - best to be high |
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Ratio of current assets (minus inventory) to current liabilities |
Quick ratio - cash, accounts receivable, and notes receivable (also called acid test |
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Indication of the firm's ability to pay off its current liabilities, if for some reason immediate payment were demanded |
Cash ratio |
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Indicate how efficiently the firm utilizes its assets |
Asset turnover ratios (also called efficiency ratios, asset utilization ratios, or asset management ratios) |
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Indication of how quickly the firm collects its accounts receivable |
Receivables turnover |
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Equation for receivables turnover |
Receivables turnover = Annual credit sales _____________________ Accounts Receivable |
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Number of days that credit sales remain in accounts receivable before they are collected. |
Average collection period |
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Equation for average collection period |
Average collection period = Accounts receivable _________________________ Annual credit sales/365 OR 365 / Receivables turnover |
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Cost of goods sold in a time period divided by the average inventory level during that period |
Inventory turnover |
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Equation for inventory turnover |
Inventory turnover = Cost of goods sold ____________________ Average inventory |
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Number of days worth of inventory on hand |
Inventory period |
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Equation for inventory period |
Inventory period = Average inventory _________________________________ Annual cost of goods sold/365 |
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Provide and indication of long-term solvency of the firm - measure the extent to which the firm is using long-term debt |
Financial leverage ratios |
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Total debt divided by total assets |
Debt ratio |
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Debt ratio equation |
Debt ratio = Total debt ____________ Total assets |
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Total debt divided by total equity |
Debt-to-equity ratio |
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Debt-to-equity ratio equation |
Debt-to-equity ratio = Total debt _____________ Total equity |
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Indicates how well the firms earnings can cover the interest payments on its debt |
Times interest earned ratio (or Interest Coverage) |
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Equation for Interest Coverage |
Interest Coverage = EBIT (earnings before taxes and interest) __________________ Interest Charges |
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Measures the success of the firm at generating profits |
Profitability ratios |
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Measure of the gross profit earned on sales |
Gross profit margin |
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Equation for gross profit margin |
Gross profit margin = Sales - Cost of goods sold ____________________________ Sales |
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Measure of how effectively the firms assets are being used to generate profits |
Return on assets |
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Equation for return on assets |
Return on assets = Net income _____________ Total assets |
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The bottom-line measure for stakeholders, measuring the profits earned for each dollar invested in the firm's stock |
Return on equity |
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Equation for return on equity |
Return on equity = Net income _____________________ Shareholder equity |
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Provide insight to the dividend policy of the firm and the prospects for future growth |
Dividend policy ratios |
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Dividend yield equation |
Dividend yield = Dividends per share ______________________ Share price |
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Dividend payout ratio equation |
Payout ratio = Dividends per share ______________________ Earnings per share |
