COMM217 ratios Flashcards
1
Q
Current ratio
A
- Current asset / Current liabilities
- Ability of the company to pay its ST obligation in CA
- > 1 % = sufficient
- ~1% = best
2
Q
Total asset turnover ratio
A
- Sales revenue / Avg total assets
- Sales revenue generated from use of assets
- High ratio = Efficient asset management
3
Q
Return on assets (ROA)
A
- Net earnings / Avg total assets
- Earnings from use of assets
- High ratio = Efficient asset management
4
Q
Net profit margin ratio
A
- Net earnings / Net sales
- Sales dollar generated in net earnings
- High ratio = Efficient sales management
5
Q
Return on equity
A
- Net earnings / Avg shareholders’ equity
- Earnings for each dollar of SE
6
Q
Gross profit percentage
A
- Gross profit / Net sales
- Xs sales price over the costs to purchase/produce goods/services sold
7
Q
Receivable turnover ratio
A
- Net credit sales / Avg net accounts receivable
- Effectiveness of credit granting and collection activities
8
Q
Quality of earnings ratio
A
- CFO / Net earnings
- Portion of earning generated in cash
9
Q
Capital expenditure ratio
A
- CFO / cash paid for PPE
- Ability to finance purchase of PPE
10
Q
Inventory Turnover Ratio
A
- COS / Avg. inventory
- How many times inventory is produced/sold during a period
11
Q
Fixed asset turnover ratio
A
- Net sales / Avg. net fixed assets
- Efficiency of company utilization of PPE over time
12
Q
Account Payable Turnover Ratio
A
- COS / Avg. Account payable
- How long it takes to pay creditors (days)
13
Q
Quick Ratio
A
- Quick assets / current liabilities
- Ability of company to pay its current obligations
14
Q
Times interest earned ratio
A
- (NE + Interest exp. + Income tax exp.) / Interest exp.
- Company ability to generate earning from current operations to meet current interest obligations
15
Q
Debt-to-equity ratio
A
- Total Liabilities / SE
- Relation between L and SE
- Higher ratio = more debt assumed by the company
