# Accounting Ratios

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The flashcards below were created by user Anonymous on FreezingBlue Flashcards.

1. Current Ratio
• Current Assets
• Current Liabilities

• - measure of liquidity - a company has sufficient liquid assets to cover its current obligations
• - the higher the ratio the better - if less than one can't pay bills
2. Return on Assets
• Net Income
• Ave. Total Assets
• - in %
• - measure of how well a company uses its assets to create profits
• -used by investors to evaluate company leadership
3. Return on Equity
• Net Income
• Ave. Equity

• - as %
• - measures the success of a company's financing, investing, and operating activities
• - high return = sound investment
4. Debt to Equity Ratio
• Total Liabilities
• Total Liabilities + Equity
• - as %
• - the more outstanding debt a company has, the more its earnings must go to making the payments on this debt load.
• - the more debt a company carries, the more the company is effectively owned by its lenders
5. Inventory Turnover
• Cost of Goods Sold
• Average Inventory

• - measures the success a company has in turning inventory into sales
• - # of times a company sells and replaces its inventory during year
6. Average Days Sales in Inventory
• 365
• Inventory Turn

- the number of days sales, on average that a firm carries in inventory
7. Acid Test Ratio = Quick Ratio
• Current Assets - Inventory
• Current Liabilities

- Stringent test that indicates whether a company has enough current assets to cover immediate liabilities w/o selling inventory
8. Accounts Receivable Turnover
• Sales
• Ave. Net Accts. Rec.

- the # of times accts. rec. are turned over or collected during the period
9. Average Collection Period
• 365
• Accts. Rec. Turn

- # of days it takes on average to collect an account receivable
10. Book Value Per Share (Liquidation Value)
• Assets - Liabilites (OR Owners Equity)
• # of shares of C/S at the end of the year

- the dollar amount of equity that is associated with each share of stock
11. Prices Earnings Ratio
• Market Price per Share
• Earnings per Share

- tells you how expensive a share of stock is in relation to its earnings.

### Card Set Information

 Author: Anonymous ID: 66948 Filename: Accounting Ratios Updated: 2011-02-17 05:00:53 Tags: Accounting Folders: Description: Accounting Ratios Exam 2 Show Answers:

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