Managerial Accounting

Front 1

Gross Margin Percentage

Back 1

Note: more stable for retail companies than for other companies because COGS (costs of goods sold) in retailing excludes fixed costs (a periodic change that doesn’t vary with business volume such as insurance, rent, and mortgage.
-when fixed costs are included in the cost of goods sold, the gross margin percentage should increase and decrease with sales volume. increased sales volume ⇒fixed costs spread across more units⇒Gross % increase.

Front 2

Gross Margin

Back 2

Front 3

Earnings per Share

Back 3

Note: net income for common stockholders = net income – dividends paid to preferred stock holders.

Front 4

Earnings per Share

Back 4

Note: net income for common stockholders = net income – dividends paid to preferred stock holders.

Front 5

Average # of Common shares outstanding

Back 5

Front 6

Price-Earnings Ratio

Back 6

Note: With a high P – E ratio, investors are willing to pay a premium for the company’s stock (they expect the company to grow)

Front 7

Dividend Yield Ratio

Back 7

Note: Measures the rate of return (in the form of cash dividends only) that would be earned by an investor who buys common stock at the current market price.

Front 8

Return on Total Assets

Back 8

Note: interest expenses are added back to the net income to show what earnings would have been if the company had not debt. (this allows comparison of companies with and without debt)
-Placed on an after-tax basis by multiplying it by the factor (1- tax rate)

Front 9

Return on Common Stock

Back 9

Average Common Stockholders’ Equity = Avg total stockholders’ Eq – Avg Prf stock.
Note: based on the book value of common stockholders’ equity.

Front 10

Book Value per Share

Back 10

Note: This is the amount that would be distributed to holders of each share of common stock if all assets were sold at their balance sheet carrying amounts and if all creditors were paid off.
- Reflects the results of events that have occurred in the past.

Front 11

Working Capital

Back 11

Note: WC is expense and this is why managers often want to minimize this. To put it into proper perspective, it should be supplemented with these ratios: Current ratio, acid-test ratio, accounts receivable turnover and the inventory turnover.

Front 12

Current Ratio

Back 12

Note: usually regarded as the short-term paying ability
-Declining – sign of deteriorating financial condition, or it might be the result of eliminating obsolete inventories or other stagnant CA.
-Improving = might be result of stockpiling inventory, or might indicate an improving financial situation.

Front 13

Acid- Test (quick) Ratio

Back 13

Note: More rigorous test of a comp’s ability to meet its short-term debts than the current ratio. It excludes the inventories and prepaid expenses from the total current assets leaving the more liquid assets to be divided by current liabilities.
-Measures how well a company can meet its obligations without having to liquidate or depend too heavily on its inventory.

Front 14

Accounts Receivable Turnover

Back 14

Note: measures how quickly sales are converted into cash.

Front 15

Average Collection Period

Back 15

Note: whether this measurement is or good bad depends on the credit terms your firm is offering its customers. If credit terms are 30 days, then 35 avg C.P. would usually be viewed as good.

Front 16

Inventory Turnover

Back 16

Note: measures how many times a company’s inventory has been sold and replaced during the year.

Front 17

Average Sale Period

Back 17

Front 18

Times Interest Earned Ratio

Back 18

Note: based on earnings before interest expense and income taxes because that is the amount of earnings that is available for making interest payments.
- 1 is inadequate because interest expense is included in the numerator.
- 2 or more is considered sufficient to protect long-term creditors.

Front 19

Debt-to-Equity Ratio

Back 19

Note: Creditors like to see less debt and more equity because equity represents the excess of total assets over total liabilities and means a better buffer for them.