Chapter 3

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Author:
atcannon
ID:
300433
Filename:
Chapter 3
Updated:
2015-04-10 21:16:46
Tags:
Finance 315
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Description:
Financial Analysis
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  1. financial ratio
    used to weigh and evaluate the operating performance of the firm and judge comparative performance
  2. profitability ratio 3
    • profit margin
    • return on assets (investment)
    • Return on equity
  3. Asset utilization ratios 5
    • receivable turnover
    • average collection period
    • inventory turnover
    • fixed asset turnover
    • total asset turnover
  4. liquidity ratio 2
    • current ratio
    • quick ratio
  5. debt utilization ratios 3
    • debt to total assets
    • times interest earned
    • fixed charge coverage
  6. profitability ratio
    purpose
    • measure the ability of a firm to earn an adequate return on sales, total assets, and invested capital
    • ability to effectively employ its resources
  7. asset utilization ratios
    • measure the speed at which a firm is turning over receivables, inventory, and longer-term assets.
    • how fast collecting, selling, generating sales
  8. liquidity ratios
    measures the firm's ability to pay off short-term debt as they come due
  9. debt utilization ratios
    measures the overall debt position of the firm in light of its asset base and earning power
  10. profit margin
    equation
    net income / sales
  11. return on assets (investment)
    equation
    net income / total assets
  12. return on equity
    equation
    net income / stockholder's equity
  13. Du Pont system of analysis
    • return on assets (investment) =
    • profit margin * asset turnover

    • profit margin = net income / sales
    • asset turnover = sales / total assets
  14. Du Pont formula
    modified
    • return on equity =
    • return on assets (invest) * (1- debt / assets)

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