Ratios

Question 1

Compute Average Collection Period

Answer 1

365 / AR Turnover
365 / (Net Credit Sales / Average AR)
Average AR / Average Daily SAles
Average AR / (Net Credit Sales/365)

Only for credit sales. Total sales will shift ratio.
Use Average AR Net of allowance for doubtful accounts

Question 2

Beta Coefficient

Answer 2

Measures market risk of a security relative to other securities

Question 3

Return on Equity

Answer 3

Net Income - Preferred Dividends / Average Common Equity

Question 4

Required Rate of Retun

Answer 4

Risk-free rate + Beta coefficient (Market rate - Risk-free rate)

Question 5

Return on Assets

Answer 5

Net Income / Average Total Assets

ALSO Profit Margin Ratio x Asset Turnover Ratio
ALSO Return on Equity x (1 - Debt Ratio)

Question 6

Book Value per Share

Answer 6

Total Stockholders’ Equity - Preferred Equity (and dividends in arears) / Number of Share of Common Stock Outstanding

Question 7

Earnings per Share

Answer 7

Net Income - Preferred Dividends / Average Total Equity

Question 8

Profit Margin Ratio

Answer 8

Profit Measure / Net Income

Question 9

Asset Turnover

Answer 9

Total sales / Total average assets

Question 10

Dividend Payout Ratio

Answer 10

Cash Dividends Paid on Common Stock / (Net income - Preferred Dividends)

Question 11

Defensive Interval Ratio

Answer 11

A ratio that measures liquidity - indicator of ability to pay debts with quick assets

Current assets / Daily operating expenses