Mod 4

Question 1

Receivables turnover

Answer 1

=Net credit sales (revenue) / by average accounts receivable

Answer in %

Question 2

Average collection period

Answer 2

=365/ Receivable turnover

Question 3

Inventory turnover

Answer 3

=COGS (cost of good sold )/ avg inventory

Question 4

Average days in inventory

Answer 4

=365/ inventory turnover

Question 5

Rate of return on assets (ROA)

Answer 5

=net income/total assets avg

In %

Question 6

Profit margin

Answer 6

=net income / sales (revenue)

In %

Question 7

Asset turnover

Answer 7

=sales (revenue) /average total assets

Question 8

Return on equity (ROE)

Answer 8

ROE=Net income/ average stockholders equity

Measures how profitable the company was given the shareholder investment

ROE= PM x AT x FL
Pm profit margin, asset turnover is AT, Financial leverage FL

PM= net income / net sales
(net sales could also be described as sales or revenues in the income statement)
At= revenue/ average assets
FL= average assets/average stockholders equity

Question 9

Equity multiplier

Answer 9

=total assets /total shareholders equity

Question 10

DuPont ROE

Answer 10

=Rate of return on assets x Equity multiple

Question 11

Debt to equity ratio

Answer 11

= total liabilities/total shareholder equity

Question 12

Times interest earned

Answer 12

=(Net income +financial expense + current income tax)/finance expense

Question 13

Current ratio

Answer 13

=Total current assets/total current liabilities

Question 14

Quick ratio

Answer 14

=(cash assets+accounts receivable)/Total current liabilities

Question 15

Earnings per share Basic

Answer 15

= net income/weighted average shares outstanding

Question 16

Earnings per share diluted

Answer 16

= net income/(stock options+ weighted average shares outstanding)

Question 17

Weighted average shares outstanding diluted

Answer 17

= weighted average shares outstanding basic + stock options

Question 18

Common size balance sheet

Answer 18

= Asset line item/total assets

Question 19

Horizontal analysis percent change

Answer 19

= line item divided by dollar change

In percent

Question 20

Times interest earned

Answer 20

= (net income + current income tax + finance expense) / finance expense

Question 21

Debt to equity ratio

Answer 21

=total liabilities / total shareholder equity

Question 22

Times interest earned

Answer 22

Times interest earned ratio= (net income + current income tax + finance expense) / finance expense

Times interest earned ratio = income before interest and income before taxes or EBIT/interest expense

EBIT is in the numerator because interest expense is paid out at EBIT recall EBIT we deduct the interest expense to get income before taxes before taxes EBT, then we deduct taxes from EBT to get income

Times interest earned ratio is a Measure of debt paying ability of a company.

Question 23

Debt to equity ratio

Answer 23

=total liabilities / total shareholder equity

Question 24

Accounting Equation

Assets=

Total assets=

Total liabilities=

Total assets=

Answer 24

Assets = liabilities+ stockholders equity

Total assets = total liabilities + equity

Totally Liabilities = Current liabilities + long term liabilities

Total assets= current assets + long term assets

Question 25

Retained earnings ending= …. Dividends= Cash at end of year =

Answer 25

Retained earnings ending= retained earnings beginning + net income - dividends Dividends = retained earnings beginning + net income - retained earnings ending Cash at year end = cash at start of the year + cash from operations + cash from investing + cash from financing

Question 26

Gross profit= Expenses include

Answer 26

Gross profit= sales- cost of goods sold Expenses include interest expense, appear in the income statement cost of good sold, appear in the income statement

Question 27

Net working Capital =

Answer 27

Net working capital= current assets- current liabilities

Question 28

Transactional analysis Purchase on credit increases? Cash collected on accounts receivable produces? Accrual of wages expense increases? Sales on account would increase?

Answer 28

Purchase and credit increases both accounts payable and inventory which are bounce sheet accounts no effect on income statement Cash collected on accounts receivable produces increase in cash and a decrease in accounts receivable both asset accounts. no impact on liabilities or equity. Accrual of wage expense increases wage payables (a liability) and decrease retained earnings resulting from a decrease in net income. Sales on account would increase non-cash assets (accounts receivable). note when cash and equipment are contributed by the owner this represents contributed capital