SIE 367
Home > Flashcards > Print Preview
The flashcards below were created by user
driven360
on
FreezingBlue Flashcards. What would you like to do?

§Debt Ratio This is a measure of
the amount of debt used to finance assets.

§Interest Coverage Ratio Used by
lending institutions to determine ability to meet loan expenses.
 = EBIT (Earnings Before Interest & Taxes) / Interest
 Expense

§Working Capital Measures a
company’s ability to pay current liabilities.
 = AVG Current Assets – AVG Current
 Liabilities

Current Ratio Illustrates excess
coverage of current assets to pay current debts
 = AVG Current Assets / AVG Current
 Liabilities

§Quick Ratio (Acid Test) Harsh test
to determine ability to pay current obligations
 = (AVG Current Assets – AVG
 Inventory) / AVG Current Liabilities

Inventory Turnover Measures how
frequently inventory is replenished
 = Sales per unit Time / AVG
 Inventory
 Note: Reciprocal is shelf life of
 inventory

Accounts Receivable Turnover
Measures frequency of A/R collection per unit time
 = Sales per unit Time / AVG
 Receivables
 Note: Reciprocal is Receivables
 collection time

§Total Assets Turnover Measures how
well a firm uses it’s assets to produce revenue.
 = Sales per unit Time / AVG Total
 Assets
 Note: Reciprocal is Asset
 Utilization, the time assets are used to produce revenue

§Gross Margin Ratio of Gross Profit
to Sales (%).
= Gross Profit / Sales

§Net Margin Ratio of Net Income to
Sales (%).
= Net Income / Sales

§Return on Total Assets Measures a
company’s utilization of assets to earn a profit.
 ={ (Net Income + (Interest Expense) * (1 –
 Tax rate))} / AVG Total Assets

§Return on Equity Measures the return of
a company per dollar of shareholder equity.
= Net Income / AVG Shareholder Equity

Annual Averages of Balance Sheet
values are computed as follows from Monthly Balance Sheets:
summation of 12 month balance sheet value/ 12