Performance Measures 2 Flashcards

1
Q

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

A

Can the company pay their short-term liabilities?

Current Ratio : Current Assets / Current Liabilities

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2
Q

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

A

How is the company financing its capital?

Debt to Equity Ratio : Total Debt / Total Equity

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3
Q

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

A

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

Debt to Total Assets : Total Liabilities / Total Assets

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4
Q

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

A

How profitable is the product after COGS?

Gross Margin : Gross Profit / Net Sales

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5
Q

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

A

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

Operating Profit Margin : Operating Profit / Net Sales

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6
Q

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

A

Can the company make their interest payments?

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

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7
Q

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

A

What % return are the assets generating?

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

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8
Q

How is Market/Book ratio calculated?

A

Market Value of Common Stock / Book Value of Common Stock

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9
Q

What is Inventory Turnover and how is it calculated?

A

How quickly does inventory get sold?

Inventory Turnover : COGS / Average Inventory

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10
Q

What is the Quick Ratio and how is it calculated?

A

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

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

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11
Q

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

A

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

Average Collection Period : Average AR / Average Sales Per Day

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12
Q

What is an Internal Failure?

A

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

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13
Q

What is an External Failure?

A

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

This includes recalls.

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14
Q

What is Appraisal Cost?

A

Quality control- testing & inspection costs.

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