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23 Cards in this Set

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Gross profit margin
(Sales - Cost of goods sold)/Sales
Shows percentage of revenues available to cover operating expenses and yield a profit. Higher is better.
Operating profit margin
(or return on sales)
(Sales-O.E.)/Sales = O.Income/Sales
Shows the profitability of current operations without regard to interest charges and income taxes. Higher is better.
Net profit margin
(or net return on sales)
Profits after taxes/Sales
Shows after tax profits per dollar of sales. Higher is better.
Return on total assets
Profits after taxes+interest/Total assets
A measure of the return on total investment in the enterprise. Higher is better.
Return on stockholders' equity
Profits after taxes/Total stockholders' equity
Shows the return stockholders are earning on their investment in the enterprise. 12-15% is average, trend should be upward.
Earnings per share
Profits after taxes/# of shares ourstanding
Shows the earnings for each share of common stock outstanding. The bigger the %, the better
Current ratio
C.A./C.L.
Shows a firms ability to pay CL using assets that can be converted to cash in the near term. Ratio should be >1.
Quick ratio
(or acid test ratio)
CA - Inventory/CL
Shows a firms ability to pay CL without relying on the sale of its inventories
Working capital
CA-CL
Bigger amounts are better since company can then pay its CL on timely basis and finance inventory expansion, add AR, and larger base of operations without borrowing or raising equity.
Debt-to-assets ratio
Total debt/Total assets
Measures extent to which borrowed funds have been used to finance firms operations. Low ratios are better.
Debt-to-equity ratio
Total debt/Total S.E.
Should be <1. High ratios signal excessive debt, low credit, and weak B/S strength.
Long-term debt-to-equity ratio
Long-term debt/Total SE
Shows the balance between debt and equity in firms LT capital structure. Low ratios are better and mean greater capacity to borrow funds if needed.
Times-interest-earned
(or coverage) ratio
O.Income/ Int.Exp.
Measures ability to pay annual interest charges. Lenders insist min of 2.0, best are 3.0 or better.
Current ratio
C.A./C.L.
Shows a firms ability to pay CL using assets that can be converted to cash in the near term. Ratio should be >1.
Quick ratio
(or acid test ratio)
CA - Inventory/CL
Shows a firms ability to pay CL without relying on the sale of its inventories
Working capital
CA-CL
Bigger amounts are better since company can then pay its CL on timely basis and finance inventory expansion, add AR, and larger base of operations without borrowing or raising equity.
Days of Inventory
(Sales/365)/Inventory
Measures inventory management efficiency. Fewer days are better.
Inventory turnover
Sales/Inventory
Measures the # of inventory turns per year. Higher is better.
Average collection period
AR/(Total sales/365)
AR/Avg.daily sales
Indicates the avg length of time the firm must wait after making a sale to receive cash payment. Shorter is better.
Dividend yield on common stock
Annual div per share/current market price per share
A measure of the return that shareholders receive in the form of dividends. 2-3% is typical. Fast growth<1%, slow growth<4%
Price-earnings ratio
Current market price per share/EPS
PE ratio above 20 indicate strong investor confidence in firm's outlook and earnings growth.
Dividend payout ratio
Annual div per share/EPS
Indicates the % of aftertax profits paid out as div
Internal cash flow
Aftertax profits+Depr
Estimate of the cash a company's business is generating after payment of OE, Int, and Taxes. Can be used for div payments or funding capital exp.