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CPA Exam > Ratios > Flashcards

Ratios Flashcards

1
Q

Days Sales in Inventory

A

Average inventory / COGS x Working days per year

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2
Q

Times Interest Earned (Coverage Ratio)

A

Income before interest expense and taxes / interest expense

Or

Earnings before interest and taxes / interest expense

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3
Q

Debt to Equity

A

Total liabilities / Total equity

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4
Q

LT Debt to Capitalization

A

LT Debt / LT Debt + Preferred Stk + Common Stk

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5
Q

LT Debt to Total Assets

A

LT Debt / Total Assets

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6
Q

Debt Service Coverage Ratio

A

Net Operating Income / Total Debt Service

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7
Q

Accounts Receivable Turnover

A

Net credit sales / net average AR

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8
Q

AR Turnover in Days

A

365 / (Net credit sales / average AR)

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9
Q

Asset turnover

A

Sales (net) / average total assets

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10
Q

Cash conversion Cycle

A

Days sales in AR / days in inventory - days payables outstanding

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11
Q

Book value per share

A

Total stockholders equity LESS preferred equity and dividends in arrears / number of common stock outstanding

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12
Q

Inventory Turnover
Measure of Liquidity

A

COGS / Average Inventory

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13
Q

Book value per share

A

Total shareholder equity - preferred equity / number of shares outstanding

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14
Q

Earnings per share

A

Basic - income available to common shareholders. / weighted average common shares outstanding

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15
Q

Dividend Yield

A

Annual dividends per common share / latest market price per common share

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16
Q

Dividend payout ratio

A

Cash dividends / net income - preferred dividends

Also

Dividend per common share / earnings per share

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17
Q

Times Preferred Dividend Ratio

A

Net Income / Preferred Stock Dividends

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18
Q

Gross margin or gross profit margin

A

Gross profit / net sales

Revenue-COGS / revenue

Net sales - cost of sales / net sales

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19
Q

Profit margin

A

Net income / net sales

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20
Q

Price-earnings ratio

A

Stock price / earnings per share

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21
Q

Rate of return on assets

A

Net income / average assets

Also return o. Equity x (1 - debt ratio)

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22
Q

Dividends per share

A

Dividends paid out / total shares

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23
Q

Return on Shareholder’s equity

A

Net income after taxes - preferred dividends / average common shareholders equity

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24
Q

Return on Equity

A

Net income - preferred dividends / average common equity

Average common equity is common stock, common APIC, and retained earnings (do not include preferred stock amounts)

Also

Roe = Profit margin x asset turnover x leverage

Also return on assets / (1 - debt ratio)

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25
Q

Certainty equivalent adjustments

A

Risk analysis technique based on utility theory.

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26
Q

Leverage

A

Average assets / average common equity

Measured by extent to which assets of entity financed with debt, which requires cash fixed payment

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27
Q

Days purchases in Ap

A

Average AP / COGS + change in inventory x 365

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28
Q

Working Capital

A

Current assets - current liabilities

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29
Q

Number of days in cash flow cycle

A

Average age of inventory + average age of AR - average age of AP

30
Q

Return. On Assets

A

Profit margin x asset turnover

31
Q

Average days’ sales in AR

A

Receivables turnover = net credit sales / average AR

360 / receivables turnover

32
Q

Return on Stockeholders investment (ROSI)

A

Dividends + market value of earnings retained / number of shares x share price

33
Q

Return on investment (ROI)

A

Net income / invested capital

(Can be measured at point in time or by taking the average over a period of time)

34
Q

Price to cash flow (P/CF)

A

Stock price / operating cash flow per share

35
Q

Gross margin ratio

A

Gross margin / net sales

36
Q

Cash Flow Ratio

A

Cash flow from operating / current liabilities

37
Q

Economic vs Accounting Profit

A

Economist deducts coat of capital (imputed) in calculating profit. Accountant deducts only oop operating expenses

38
Q

Economic Value Added

A

Economic profit of a project
Focuses on earnings above cost of capital for shareholders

After-tax profit (aka after-tax operating income) - (total assets (aka investment) x weighted average cost of capital)

Also: net operating profit after taxes (NOPAT) - capital charge

Capital charge = invested capital x weighted average cost of capital (WACC)

39
Q

Treasury Stock Method

A

Assumption that options & warrants exercised at beginning of period ( or date of issuance if later) and proceeds from the exercise would be used to purchase outstanding treasury stock).

40
Q

Sustainable Equity Growth Rate (SEGR)

A

Return on equity x (1 - dividend payout ratio)

41
Q

Sensitivity analysis

A

Determines how the results will change if the original data or the underlying assumptions change.

Process that identifies data changes that alter optimal solutions.

42
Q

Probability Analysis

A

Helpful to combine with sensitivity analysis

43
Q

Required rate of return

A

Risk-free rate + beta coefficient (market rate - risk-free rate)

44
Q

Profit Margin Ratio

A

Percentage of each dollar of sales that is recognized as net income.

Operating income / sales revenue

45
Q

Cash Ratio

A

Cash + cash equivalents + marketable securities / current liabilities

46
Q

DuPont equation

A

Return on Equity (ROE) = profit margin x total asset turnover

47
Q

Certainty equivalent adjustment

A

Risk analysis technique based on utility theory

48
Q

Utility theory

A
49
Q

Days purchases in AP Ratio (DPAPR)

A

Average AP / COGS + Change in inventory

50
Q

Return on Shareholder Investment (ROSI)

A

Dividends + Market value of earnings retained / number of shares x share price

51
Q

Return on Assets

A

Profit margin x asset turnover

52
Q

Price multiple ratios

A

Uses share price ; influenced by management’s behavior

53
Q

Economic profit

A

Revenue less actual costs and cost of capital

54
Q

Working capital turnover (efficiency)

A

Turning assets into sales/revenues
Net sales revenue / net working capital (which is current assets - current liabilities)

55
Q

Contribution margin

A

Unit sales price - unit variable cost

Also, sales less variable cost

56
Q

Operating cycle

A

AR turnover + inventory turnover
Or
Days sales in AR + days sales in inventory

57
Q

Stock value

A

Dividend per share / annual required rate of return - dividend growth rate

58
Q

Book Value per Share

A

Total shareholders equity - preferred equity / common stock outstanding

59
Q

Net Profit Margi

A

Net income / net sales

60
Q

Degree of Financial Leverage

A

DFL = EBIT / EBIT - Interest

61
Q

Equity Multiplier

A

Total assets / total common equity

62
Q

Earnings per share using stocks (EPSS) and bonds (EPSB)

A

EPSS = (EBIT x (1 - tax rate)) / shares of stock

EPSB = (EBIT - bond interest) - (1 - tax rate) / shares of stock

63
Q

Expected total return of an investment over a given time period

A

Includes all capital gains and any dividends

Ending price + dividends/ opening price

64
Q

Profit margin

A

Net income / sales

65
Q

Equity multiplier

A

Total assets / common equity

66
Q

Working capital turnover

A

Net sales revenue/ net working capital

67
Q

Accounting Profit

A

Total revenues - measurable/estimable expenses paid to outsiders to acquire and use all necessary factors of production. Does not include implicit costs

68
Q

Cost of Capital

A

Weighted average cost in percentage form that a firm will incur in raising new funds to finance future investment

69
Q

Economic profit

A

Total revenues - economic cost. It is the total revenue received from sale of output less all costs (explicit and implicit, including opportunity costs and return to the owner for use of owner’s capital and skill

70
Q

Cash Ratio

A

Most conservative of liquidity ratios. Includes only cash and current assets readily converted to cash over current liabilities

71
Q

Cash flow ratio

A

Cash flow from operations / current liabilities

CPA Exam (17 decks)

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