Flashcards in Performance Measures 2 Deck (14):

1

## What does the Current Ratio tell us? How is it calculated?

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Can the company pay their short-term liabilities?

Current Ratio : Current Assets / Current Liabilities

2

## What does the Debt to Equity Ratio tell us? How is it calculated?

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How is the company financing its capital?

Debt to Equity Ratio : Total Debt / Total Equity

3

## What does the Debt to Total Assets ratio tell us? How is it calculated?

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What proportions of the company's assets are encumbered with debt?

Debt to Total Assets : Total Liabilities / Total Assets

4

## What does Gross Margin % tell us? How is it calculated?

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How profitable is the product after COGS?

Gross Margin : Gross Profit / Net Sales

5

## What does Operating Profit Margin tell us? How is it calculated?

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How profitable is the product after all expenses (except interest and taxes)?

Operating Profit Margin : Operating Profit / Net Sales

6

## How is Times Interest Earned calculated and what does it mean?

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Can the company make their interest payments?

Times Interest Earned : Earnings Before Tax & Interest / Interest Expense

7

## What does Return on Assets tell us? How is it calculated?

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What % return are the assets generating?

Return on Assets : Net Income (net of interest & taxes) / Average Total Assets

8

## How is Market/Book ratio calculated?

### Market Value of Common Stock / Book Value of Common Stock

9

## What is Inventory Turnover and how is it calculated?

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How quickly does inventory get sold?

Inventory Turnover : COGS / Average Inventory

10

## What is the Quick Ratio and how is it calculated?

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It measures short-term liquidity- and only includes assets that are quickly available (i.e. not inventory)

Quick Ratio : (Current Assets - Inventory) / Current Liabilities

11

## What is Average Collection Period- and how is it calculated?

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How many days does it take the company to collect payment on A/R?

Average Collection Period : Average AR / Average Sales Per Day

12

## What is an Internal Failure?

### Products have quality defects- but are caught BEFORE they leave the warehouse.

13

## What is an External Failure?

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Product reaches the customer- but they are not satisfied with the quality of the product.

This includes recalls.

14