Lyryx Lab 3 - Finance

Front 1

Common-base-year statement

Back 1

A standardized financial statement presenting all items relative to a certain base year amount.

Front 2

Statement of cash flows

Back 2

A firm's financial statement that summarizes its sources and uses of cash over a specified period.

Front 3

Uses of cash

Back 3

A firm's activities in which cash is spent.

Front 4

Financial ratios

Back 4

Relationships determined from a firm's financial information and used for comparison purposes.

Front 5

Du Pont identity

Back 5

Popular expression breaking ROE into three parts: profit margin, total asset turnover, and financial leverage.

Front 6

Sales =

Back 6

Net income ÷ Profit margin

Front 7

Credit sales =

Back 7

Sales × Percentage of sales on credit

Front 8

Receivables turnover =

Back 8

Credit sales ÷ Accounts receivable

Front 9

Day's sales in receivables =

Back 9

365 days ÷ Receivable turnover

92 days

Front 10

An _____ in an asset account or a _____ in a liability or equity account is a use of cash.

Back 10

increase
decrease

Front 11

A _____ in an asset account or an _____ in a liability (or equity) account is a source of cash.

Back 11

decrease
increase

Front 12

Change in net income =

Back 12

Sources of cash - Uses of cash

Front 13

We know that Profit Margin =

Back 13

Net Income/Sales

Front 14

Net Income =

Back 14

Profit Margin × Sales

Front 15

ROA =

Back 15

Net Income/Total Assets

Front 16

ROE =

Back 16

Net Income/Total Equity

Front 17

Net Income/Total Equity =

Back 17

Net Income/(Total Assets - Total Debt)

Front 18

Receivables turnover =

Back 18

Sales/Receivables

Front 19

Categories of Ratios (5)

Back 19

short-term solvency or liquidity
long-term solvency or financial leverage
asset management or turnover
profitability
market value

Front 20

Days' sales in receivables =

(average collection period for an outstanding accounts receivable balance)

Back 20

365 days/Receivables Turnover

how long our inventory sits, on average

Front 21

Short-term solvency ratios (3)

Back 21

current (ratio)
quick
cash

ability to pay our bills/debts over the short term

Front 22

current ratio =

Back 22

Current Assets/Current Liabilities

can cover our current obligations at least 1.01 times

have $1.01 of CA for every $1 or CL

Front 23

quick ratio =

Back 23

(Current Assets - Inventory)/Current Liabilities

inventory is least liquid, making this ratio more conservative

Front 24

cash =

Back 24

Cash/Current Liabilities

Front 25

Asset Utilization Ratios (3)

Back 25

Total asset turnover
Inventory turnover
Receivables turnover

measures efficiency with respect to using our assets

Front 26

Total Asset Turnover (TAT) =

Back 26

Sales/Total Assets

.88 times

generate 88 cents of sales for every dollar of assets we have

not unusual for TAT to be less than 1, especially if the firm has a large amount of fixed assets

Front 27

Inventory turnover =

Back 27

COGS/Inventory

measures efficiency with respect to using our assets (4.5 times)

how intensely we use assets to generate sales

Front 28

Receivables turnover =

Back 28

Sales/AR

how many times per year we collect our AR

Front 29

Long-term solvency ratios (5)

Back 29

aka financial leverage ratios

Total debt ratio
Debt-equity ratio
equity multiplier
times interest earned ratio
Cash coverage ratio

ability to meet long-term obligations

Front 30

Total debt ratio =

Back 30

(TA-TE)/TA

.6429 means the firm finances 64% of its assets with debt

Front 31

Debt-equity ratio =

Back 31

Total debt/total equity
= total debt/(1 - total debt)

1.8 times means for every dollar invested we borrowed a $1.8 in debt

Front 32

Equity multiplier =

Back 32

1 + Debt/Equity ratio

Front 33

Times interest earned ratio =

Back 33

EBIT/Interest Paid

15.5 times that we can pay interest over the year

how well operating earnings can cover our interest payments

Front 34

Cash coverage ratio =

Back 34

(EBIT+Dep.) / Interest paid

Front 35

Profitability ratios (3)

Back 35

Profit margin
ROA
ROE

best known, most widely used

focus on net income

Front 36

Profit margin =

Back 36

NI/Sales

Front 37

Return on assets =

Back 37

NI/TA

Front 38

Return on equity =

Back 38

NI/TE

Front 39

Earnings per share =

Back 39

NI / Shares outstanding

Front 40

Dividends per share =

Back 40

Dividends / Shares outstanding

Front 41

Book value per share =

Back 41

TE / Shares outstanding

Front 42

Market-to-book ratio =

Back 42

market value per share / book value per shared

Front 43

Price-earnings ratio =

Back 43

price per share / earnings per share

how much investors are willing to pay for $1 of earnings

Front 44

Return on equity =

Back 44

Equity multiplier × ROA

Front 45

Equity multiplier × ROA =

Back 45

Equity multiplier × (Profit margin × Total assets turnover)