SU6 - Ratio Analysis

Question 1

Quick/Acid Test Ratio

Answer 1

Liquidity Measurment

Cash + Marketable Securities + Net recievables/ Current Liabilties

Question 2

Cash Ratio

Answer 2

Cash + Marketable Securities/CL

Question 3

Cash Flow Ratio

Answer 3

Cash flow from Ops/CL

Question 4

Net Working Capital Ratio

Answer 4

(CA - CL)/Total Assets

Question 5

Gross Profit Margin Ratio

Answer 5

Net Sales - COGS/ Net Sales

Question 6

Operating Profit Margin

Answer 6

Operating Income/Net Sales

Question 7

Net Profit Margin Ratio

Answer 7

Net INcome/Net Sales

Question 8

Return on Assets

Answer 8

Net Income/ AVERAGE Total Assets

Question 9

Return on Equity

Answer 9

Net Income/ AVG Total Equity

Question 10

Sustainable Growth Rate

Answer 10

ROE X (1-Dividend Payout Rate)

Question 11

DuPont Model ROA

Answer 11

NI/Avg Total Assets =
Net Profit MArgin x Total Asset Turnover
or
NI/NS x NS/Avg Total Assets

Question 12

Dupont Model ROE

Answer 12

ROA x Equity Multiplier
or
Net Profit Margin x Assets Turnover x Equity Multiplier
NI/NS x NS/Avg T.Assets x Avg T. Assets/Avg T. Equity

Question 13

Debt to Capital Ratio

Answer 13

T. Debt/T. Capital

% of capital structure provided by debt

Question 14

Debt to Equity Ratio

Answer 14

T. Debt/Stockholder’s Equity

How much debt exceeds equity stake

Question 15

Times Interest Earned

Answer 15

EBIT/Interest Expense

Evaluates a firm’s ability to pay it’s obligations

Question 16

Degree of Leverage

Answer 16

Pre fixed cost income/Post Fixed Cost Income

Question 17

Degree of Operating Leverage

Answer 17

Contibution Margin/Operating Income
or
%Change in Op Income(or)EBIT/%Change in Sales

Measures fixed costs of PPE
Increased Operating Leverage means Op Income i smore sensitive to sales volume because of a firm’s ability to ramp-up

Question 18

Degree of Financial Leverage

Answer 18

EBIT/EBT
or
$Change in Net Income/%Change in EBIT

Fixed cost in this case is just interest on debt

Question 19

Off Balance Sheet Financing

Answer 19

Methods to reduce a firm’s debt load on the balance sheet, improving ratios

Question 20

Investments in Unconsolidated Subsidiaries

Answer 20

Type of Off B/S Financing

Minority equity ownership is reported as an asset, so liabilities are not wholly represented on the parent B/S

Question 21

Special Purpose Entities

Answer 21

Type of Off B/S Financing
A specific entity for a task a take or pay contract is established to trasfer the completed project to the parent’s books?
Ex: Building a new plant

Question 22

Operating Leases

Answer 22

Type of off b/s financing

A long term contract that is recorded via rental expense payments. The full debt amount is not recorded on the b/s

Question 23

Factoring Receivables with recourse

Answer 23

type of off b/s finaincing

With Recourse means the firm is CONTINGENTLY liable, and this liability is not recorded on the balance sheet