Chapter 3 (Analysis of financial statements)

Question 1

current ratio

Answer 1

current assets/current liabilities

Question 2

quick ratio

Answer 2

(current assets - inventory)/Current liabilities

Question 3

cash ratio

Answer 3

(cash + mkt. sec.)/current liabilities

Question 4

interest coverage ratio (times interest expense)

Answer 4

EBIT/interest

Question 5

average collection period ratio (DSO)

Answer 5

AR/(sales/365) or AR/Average sales outstanding

Question 6

inventory turnover ratio

Answer 6

COGS/avg. inventory *average both years

Question 7

asset turnover ratio

Answer 7

sales/avg. assets *average both years

Question 8

financial leverage ratio

Answer 8

avg. total assets/avg. shareholder’s equity *avg. both year

Question 9

profit margin ratio

Answer 9

NI/Sales

Question 10

return on equity (ROE) ratio

Answer 10

NI/avg. shareholder’s equity *avg. both years

Question 11

return on asset (ROA) ratio

Answer 11

NI/avg. total assets *avg. both years

Question 12

price per earnings (P/E) ratio

Answer 12

current share price/EPS *NI/# of shares

Question 13

market to book ratio

Answer 13

current share price/BV per share *equity/#of shares

Question 14

price to sale ratio

Answer 14

current share price/sales per share *sales/# of shares

Question 15

P/E to growth ratio

Answer 15

PE ratio/ growth

Question 16

ev/ebitda ratio

Answer 16

(mkt cap. + debt - cash)/ebdita

Question 17

dupoint

Answer 17

Profit margin + total asset turnover + financial leverage

(NI/Sales) + (sales/ave. assets) + (avg. assets/avg. shareholder’s equity