Flashcards in Ratios - Profitability and Equity Deck (13):

1

## What are profitability Ratios used for?

### These measure aspects of a firm's operating (income/loss) results on a relative basis

2

## What is the Profit Margin Ratio?

###
Net Income/Net sales

Measures net profitability on sales

3

## What is the return on total assets ratio?

###
(Net Income + (addback) Interest Expense (net of tax effect))/Average Total Assets

Measures rate of return on total assets and indicates the efficiency with which invested assets are used

4

## What is the return on Owners' Equity Ratio?

###
Net Income/Average Stockholders' Equity (Beginning +Ending/2)

Measures rate of return (earnings) on common stockholders' investment

5

## What is the Earnings Per Share (EPS) ratio?

###
(Net Income-Preferred Dividends (obligation for the period only))/Weighted Average number of shares outstanding

Measures Income earned per (Average) share of common stock. Indicates ability to pay dividends to common shareholders

6

## What is the Price-Earnings Ratio (P/E Ratio)?

###
Market Price for a common share/Earnings per (common) share (EPS)

Measures the price of a share of common stock relative to its latest earnings per share. Indicates a measure of how the market values the stock, especially when compares with other stocks.

7

## What are the common stock dividend payout ratios?

###
Total Basis=Cash Dividends to common shareholders/Net income to common shareholder

Per Share Basis=Cash dividends per common share/Earnings per common share

measures the extent (percent) of earnings distributed to common shareholders

8

## What is the common stock yield ratio?

###
Dividend per common share/Market price per Common Share

Measures the rate of return (yield) per share of common stock

9

## What is the Debt to Equity Ratio?

###
Total Liabilities/Total Shareholders' Equity

Measure relative amounts of assets provided by creditors and shareholders

10

## What is the Owners' Equity Ratio?

###
Shareholders Equity/Total Assets

Measures the proportion of assets provided by shareholders

11

## What is the Debt Ratio?

###
Total Liabilities/Total Assets

Measures the proportion of assets provided by creditors. Indicates the extent of leverage in funding the equity

12

## What is the Book Value per common stock ratio?

###
Common Shareholders' Equity/Number of outstanding common shares

Measures the per share amount of common shareholders' claim to assets

13