Financial ratios

Question 1

Profit Margin

Answer 1

Net Income / Net sales

Question 2

Gross margin

Answer 2

(Net sales - COGS) / Net sales

Question 3

EPS

Answer 3

(Net income - Preference dividends) / Weighted average no. of ordinary shares outstanding

Question 4

ROA

Answer 4

Net Income/Average total assets

Question 5

ROE

Answer 5

Net Income/Average total shareholder’s equity

Question 6

Current ratio

Answer 6

current assets/current liabilities

Question 7

quick ratio / acid test ratio

Answer 7

quick assets/current liabilities

Question 8

cash ratio

Answer 8

cash/current liabilities

Question 9

receivable turnover
- A/R turnover
- A/P turnover

Answer 9

• Net sales/ avg net A/R
• COGS/Ave A/P

Question 10

inventory turnover

Answer 10

COGS/avg inventory

Question 11

CCC

Answer 11

365/inventory turnover + 365/receivables turnover - 365/payables turnover

Question 12

debt-equity ratio

Answer 12

total liabilities/shareholder’s equity

Question 13

debt ratio

Answer 13

total liabilities/total assets

Question 14

time interest earned

Answer 14

operating income/interest expense

Question 15

dividend yield

Answer 15

dividend per ordinary share/market price per ordinary share

Question 16

P/E ratio

Answer 16

market price per ordinary share/EPS

Question 17

Investment returns

Answer 17

Capital gains + dividend yield