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