Accounting Exam 2 (profitability ratios) PUT ON EXAM CARD

These ratios measure how well a company manages and utilizes its assets. Frequently calculated for total assets, AR, and inventory

Activity/Turnover ratios

These ratios measure a company’s ability to earn an adequate return relative to sales or resources devoted to operations

Profitability ratios

Turnover ratios

1. what is the equation for Asset Turnover Ratio?

2. We want it to be (high/low):

1. Net sales / average total assets

2. High

Turnover ratios

1. What is the equation for the Receivables Turnover Ratio? 

2. We want it to be (high/low):

1. Net sales / Average accounts receivable 

2. High

Turnover ratios

1. What is the equation for Inventory Turnover Ratio? 

2. We want it to be (high/low):

1. COGS / Average inventory

2. High

Turnover ratios

1. What is the equation for Average Collection Period ratio?: 

2. We want it to be (high/low):

1. 365 / Receivables turnover ratio

2. Low

Turnover ratios

1. What is the equation for Average Days in Inventory ratio? 

2. We want it to be (high/low):

1. 365 / Inventory turnover ratio

2. Low

Profitability ratios

1. What is the equation for Profit Margin on Sales ratio?

2. We want it to be (high/low):

1. Net income / net sales

2. High

Profitability ratios

1. What is the equation for Return on Assets ratio?

2. We want it to be (high/low):

1. Net income / Average total assets

2. High

Profitability ratios

1. What is the equation for Return on Equity ratio?

2. We want it to be (high/low):

1. Net income / Total shareholder’s equity

2. High