Financial Ratios and Analysis Flashcards
What is the formula to compute EPS and Diluted EPS?
EPS: (Net Income - Preferred Stock Dividends)/Average OS Common Shares
Diluted: (Net Income - Preferred Stock Div) / (WA Shares OS - impact of convertible securities - impact of options, warrants, and other dilutive securities)
What is the formula for average collection period (AR)?
Days in Period * Avg. AR / Net Credit Sales for period
What is the Times Interest Earned Ratio and what is its purpose?
EBIT/Interest Expense
Used to determine how many times a company can cover interest charges on a pretax basis.
*Note that Investopedia claims Total Interest Payable for bonds and other contract debt in denominator.
When calculating EPS, what is subtracted from the net income figure in the numerator of the formula? How is that figure determined?
Preferred Stock Dividends are deducted from net income in the numerator:
(NI-PSD)/Avg CS OS
Preferred Div are calculated as (par valueshares % provided in details)
How are weighted average shares outstanding computed (EPS)?
They are weighted by the number of months the shares were outstanding during the year.
When there has been a stock split, what is the effect on computations of EPS?
The split is retroactively applied to the weighted average shares outstanding for EPS calculation. IE, a 2-for-1 split will result in double the shares in PY for determining EPS.