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38 Cards in this Set
- Front
- Back
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Ratio analysis involves
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methods of
calculating and interpreting financial numbers with ratios to assess a firm’s financial condition and performance. |
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Ratio analysis is of interest to?
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shareholders, creditors,
and the firm’s own management |
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Income Statement
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Financial statement that shows the
revenues, expenses, and net income of a firm over a period of time |
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Common-Size Income Statement
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Income statement
that presents items as a percentage of revenues. |
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Balance Sheet
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Financial statement that shows the
value of the firm’s assets and liabilities at a particular time |
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Common-Size Balance Sheet
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Balance sheet that
presents items as a percentage of total assets |
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Liquidity Ratios
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measure how easily the firm can lay its hands on cash.
- Current ratio - Quick ratio - Cash ratio |
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Current ratio formula
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Current assets
/ Current liabilities |
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Quick ratio formula
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Cash+Marketable securities+Receivables
/ Current liabilities |
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Cash ratio formula
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Cash+Marketable securities
/ Current liabilities |
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Activity Ratios
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measure how
productively the firm is using its assets. - Total Asset Turnover - Inventory Turnover ratio - Average Collection Period |
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Total Asset Turnover formula
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Sales
/ Total assets |
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Inventory Turnover ratio formula
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Cost of goods sold
/ Inventory |
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Average Collection Period formula
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Account receivables
/ Average sales per day |
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Debt (Leverage) Ratios
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show how heavily the company is in debt.
- Total Debt ratio - Times Interest Earned - Debt-Equity ratio |
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Total Debt ratio formula
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Total liabilities
/ Total assets |
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Times Interest Earned formula
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EBIT
/ Interest payments |
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Debt-Equity ratio formula
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Long-term debt
/ Equity |
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Profitability Ratios
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used to measure the firm’s
return on its investments. - Net Profit Margin - Return on total Assets (ROA) - Return on common Equity (ROE) |
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Net Profit Margin formula
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Earnings after taxes
/ Sales |
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Return on total Assets (ROA) formula
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Earnings after taxes
/ Total assets |
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Return on common Equity (ROE) formula
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Earnings after taxes
/ Common equity |
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DuPont System of Analysis
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The DuPont system of analysis is used to dissect the firm’s financial statements and to assess its
financial condition. |
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Modified DuPont Formula
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ROE =
Asset Turnover x Profit margin X Financial Leverage Mulitier |
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Asset Turn Over formula
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Sales
/ Assets |
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Profit Margin formula
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Net Income
/ Sales |
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Financial Leverage Multiplier formula
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Total Assets
/ Common Stock Equity |
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Market Value Ratios
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indicate the relation between
the firm’s book value and market price. - Price/Earnings ratio - Market/Book ratio |
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Price/Earnings ratio formula
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Stock price
/ Earnings per share |
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Market/Book ratio formula
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Stock price
/ Book value per share |
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Time-series analysis
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evaluation of the firm’s
financial performance over time using financial ratio analysi |
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Cross-sectional analysis
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Industry comparative analysis
Benchmarking |
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Inventory turnover
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Measures the activity, or liquidity, of a firm,s inventory
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Average age of inventory
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average number of days sales in inventory
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Average collection period
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The average amount of time needed to collect accounts recevable
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Total asset turnover
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Indicates the efficiency with which the firms uses its assets to generate sales
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Financial Leverage
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The magnification of risk and return through the use of fixed cost financing, such as debt, and preferred stock
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Times Interest earned ratio
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Measures the firms ability to make contractual interest payments; sometimes called the interest coverage ratio
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