Audit Ratios Flashcards
Net Profit Margin
Net Income / Net Sales
This ratio indicates profit rate, and when used with the asset turnover ratio, indicates rate of return on assets
Return on total assets
Net Income / Average Total Assets
Return on assets (alternate version)
Net Profit Margin x Total Asset Turnover
NI / Net Sales) (Net Sales/Avg Total Assets
Return on Investment
Net Income + Interest Expense (1 - Tax rate) ///
Average (Long Term Liabilities + Equity)
Return on common equity
NI - Pref. Dividends / AVG Common Equity
Net operating margin percentage
Net Operating Income / Net Sales
Gross (profit) margin percentage
Gross (profit) Margin / Net sales
Operating cash flow per share
Operating Cash Flow / Common Shares Outstanding
Degree of financial leverage
Earnings before int. and taxes / Earnings Before Taxes
The degree of financial leverage is the factor by which net income will change with a change in earnings before interest and taxes. The degree of financial leverage indicates the leverage factor for recurring earnings
Earnings per share
NI - Pref Dividends / WACSO
Price/earnings ratio
Market price per share / Diluted EPS
Dividend payout ratio
Dividends per common share / Diluted EPS
Dividend yield
Dividends per common share / Market price per common share
Book value per sahre
Total SE - Pref stock / Number of CS outstanding
This ratio indicates the amount of stockholder’s equity that relates to each share of common stock. Note that preferred stock should be stated at liquidity value if other than book value.
Debt/Equity
Total Liabilities / Common Stockholder’s Equity
This ratio indicates the degree of protection to creditors in case of insolvency. The lower this ratio the better the company’s position. In Gi’s case, the ratio is very high, indicating that a majority of funds come from creditors.
