Chapter 3 Flashcards
(33 cards)
Common-size comparison
A standardized financial statement presenting all items in percentage terms. Balance sheet items are shown as a percentage of assets and income statement items as a percentage of sales.
Financial ratios
Relationship determined from a firm’s financial information and used for comparison purposes.
What are the traditional groups for financial ratios?
- Short-term solvency, or liquidity, ratios
- Long-term solvency, or financial leverage, ratios.
- Asset management, or turnover, ratios.
- Profitability ratios
- Market value ratios
Current ratio formula
Current assets/current liabilities
What does a high current ratio mean to a firm?
Liquidity, but it may also indicate an inefficient use of cash and other short-term assets
Quick (or acid-test) ratio formula
(Current assets- inventory)/ current liabilities
Cash ratio formula
Cash/current liabilities
Total debt ratio
(Total assets-total equity)/total assets
Debt-equity ratio formula
Total debt/total equity.
Equity multiplier formula
Total assets/total equity
Times interest earned (TIE) ratio formula
Earnings before interest and tax/interest
Cash coverage ratio formula
Earning before interest and taxes + depreciation)/interest
EBITDA
Earnings before interest, taxes, depreciation, and amortization.
Inventory turnover formula
COGS/inventory
Days’ sales in inventory
365 days/ inventory turnover
Receivables turnover formula
Sales/accounts receivable
Days’ sales in receivable formula
365 days/receivables turnover
Total asset turnover formula
Sales/total assets
Capital intensity ratio formula
1/total asset turnover
Profit margin formula
Net income/sales
Return on assets formula
Net income/total assets
Return on equity formula
Net income/total equity
Earning per share formula
Net income/shares outstanding
Price-earnings ratio formula
Price per share/earnings per share
