Ratios

Question 1

Return on Assets

Answer 1

EBIT/Total Assets

For every dollar you have in assets they are making a return of __%

Question 2

Return on Equity

Answer 2

Net Income/Equity (This is what will change with interest rates)

For every dollar you have in equity you are making __% return on it

Question 3

Financial Leverage

Answer 3

If ROA is the same as ROE is means either two things.

1) The Company has no debt
2) The interest rate is the same as the ROA

Question 4

Positive financial leverage

Answer 4

The ability to be able to borrow greater amount of money because you are, as of now, borrowing money at a lower interest rate than what you are earning back on the money you borrowed (your liabilities are working for you)

Question 5

Negative Financial Leverage

Answer 5

When the interest rate at which you are currently borrowing is lower than what you are making back on the money you borrow (your liabilities are working against you and not pulling their weight)

Question 6

Dividend payout ratio

Answer 6

Dividends/Net Income

For every dollar you have in net income you are paying out $XXX in dividends (This is 100%-retention ratio)

Question 7

Retention Ratio

Answer 7

Addition to Retained Earnings/Net Income

For every dollar you earn in net income you are adding $XXX to RE (This is 100%-dividend payout ratio)

Question 8

AVG Tax Rate

Answer 8

Amount taxed/Taxable Income

This shows avg tax rate over different tiered tax rates

Question 9

Marginal tax rate

Answer 9

The tax rate of one additional dollar, also states what is your highest tax bracket

Question 10

Net Working Capital

Answer 10

Current Assets - Current Liabilities

Question 11

Earnings per share

Answer 11

Net Income/Avg shares outstanding

Question 12

Dividends per share

Answer 12

Dividends/Avg shares outstanding

Question 13

Statement of cash flows

Answer 13

1) Operating Activity (inflow/outflow from operations)
2) Investing Activity (Long-term assets PPE etc)
3) Financing Activity (Long-term liabilities N/P etc, long term financing dividends etc)

Question 14

Current Ratio

Answer 14

Current Assets/Current Liabilities

Question 15

Quick Ratio

Answer 15

Current Assets - inventory - prepaid exp etc/Current Liabilities

Question 16

Cash Ratio

Answer 16

Cash/Current Liabilities

Question 17

Inventory Turnover

Answer 17

COGS/Avg inventory

Question 18

Days sales in inventory

Answer 18

365/inventory turnover

Question 19

receivable turnover

Answer 19

sales/A/R

Question 20

Days sales in receivable (avg collections period)

Answer 20

365/receivable turnover

Question 21

Fixed Asset Turnover

Answer 21

Sales/net fixed assets

Question 22

Total asset Turnover

Answer 22

sales/total assets

Question 23

Interval Measure

Answer 23

Current Assets/Avg daily operating costs

Says how long you can survive without operating/selling

Question 24

1) Debt Assets Ratio

Answer 24

Total Debt/total assets

For every dollar I have in assets, I borrowed $xx

Question 25

2) Debt to equity Ratio

Answer 25

total debt/total equity For every dollar the owners put up, they borrowed $xx

Question 26

3) equity Multiplier

Answer 26

Total Assets/total equity For every dollar the owners put up the have $xx in assets

Question 27

4) Times interest Earned

Answer 27

EBIT/interest For every dollar I owe in interest I am earning $xx

Question 28

5) Cash Coverage Ratio

Answer 28

EBIT + Depreciation exp/interest For every dollar I owe in Interest I am generating $xx in CASH

Question 29

Dupont Anylisis

Answer 29

``` Profit Margin (net Income/Net Sales) x Total Asset Turnover (sales/total assets) = ROA (Net Income/Total assets) x Equity Multiplier (Total Assets/Total Equity) = ROE (Net Income/Total Equity) ```

Question 30

Price-earnings ratio

Answer 30

price per share/earnings per share People are willing to pay XX times earnings per share to buy 1 share, usually between 12-18

Question 31

Earnings per share

Answer 31

Net Income/Shares outstanding

Question 32

PEG Ratio

Answer 32

Price-earnings ratio/anticipated growth rate PEG should be between 1-2

Question 33

Capital Intensity ratio

Answer 33

total assets/total sales For every dollar you increase in sales you need $XX to support that increase

Question 34

External Funds Needed (EFN)

Answer 34

How much you need to borrow in order to increase you business and support projected sales

Question 35

Internal Growth Rate

Answer 35

ROA x Retention ratio/1-(ROA x retention Ratio) How much you can grow without external financing

Question 36

Sustainable Growth Rate

Answer 36

ROE x retention Ratio/1-(ROE x Retention Ratio) How much you can grow just by borrowing money and not financing more through equity