Accounting Ratios

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  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

Accounting Ratios
2011-02-17 05:00:53

Accounting Ratios Exam 2
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