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35 Cards in this Set
- Front
- Back
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Liquidity ratios
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provide information about the liquidity or short-term debt paying ability of the firm. These are the common ones you should be familiar with.
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Working Capital
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current assets – current liabilities
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Current Ratio
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current assets / current liabilities
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Quick Ratio
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(current assets – inventory) / current liabilities. (This ratio is also known as the acid test.)
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Cash Ratio
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(cash + marketable securities) / current liabilities
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Activity ratios
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measure the firm’s operating efficiency. They show how efficiently management is using the assets at their disposal.
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Inventory Turnover
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Cost of Goods Sold / Average Inventory
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Days to Sell Inventory
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365 / Inventory Turnover
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Accounts Receivable Turnover
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Sales / Average Accounts Receivable
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Receivable Collection Period
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365 / Accounts Receivable Turnover
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Working Capital Turnover
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Sales / Average Working Capital
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Total Asset Turnover
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Sales / Average Total Assets
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Fixed Asset Turnover
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Sales / Average Fixed Assets
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Equity Turnover
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Sales / Average Equity
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Quick was to firgure ratio that has the word turnover in it
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An easy way to remember these "Turnover" ratios is that sales are always in the numerator and the name of the ratio in the denominator
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COGS
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Cost of Goods Sold (aka Cost of Sales)
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Gross Profit
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Gross Profit = Net Sales – COGS
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Operating Profits (EBIT)
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Earnings Before Interest and Taxes
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EBT
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Earnings Before Taxes
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EAT
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Earnings After Taxes (aka Net Income)
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Gross Profit Margin
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Gross Profit / Sales
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Operating Profit Margin
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EBIT / Sales
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Net After Tax Profit Margin
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EAT / Sales
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Net Before Tax Profit Margin
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EBT / Sales
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Return on Assets (ROA)
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EAT / Total Assets
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Return on Total Capital (ROTC)
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(EAT + I) / Total Capital (Where I = Interest Expense)
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Return on Equity (ROE)
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EAT / Equity
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Quick way to figure out ratio with margin in it
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An easy way to remember all the “Margins” is that sales are always in the denominator and the name of the ratio is in the numerator.
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Debt (or Solvency) ratios
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measure the financial strength of the firm. Creditors are very interested in these ratios. Bankruptcy is actually predictable when a firm meets certain criteria in relation to deteriorating solvency ratios.
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Total Debt to Equity
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Total Liabilities / Equity
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Debt to Equity
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Total Long-term Debt / Equity
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Assets to Equity (leverage multiplier)
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Total Assets / Equity
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Times Interest Earned
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EBIT/I (Where I = Interest Expense)
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sustainable growth rate (g)
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g = ROE X b, where b is equal to the retention ratio.
The retention ratio is 1 – the payout ratio. The payout ratio is dividends / earnings |
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Return on Equity (ROE)
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Assets to Equity x Asset Turnover x Net After Tax Profit Margin
or EAT/Equity |
