Chapter 3: Financial Ratios, Cash Flows and Performance Metrics

Vocabulary flashcards covering key financial concepts and metrics from the lecture notes.

Net cash flow

Cash generated after taxes and non-cash charges; calculated as Net Income plus Depreciation & Amortization (D&A).

EBITDA

Earnings before interest, taxes, depreciation, and amortization; revenue minus operating costs excluding D&A.

EBIT

Earnings before interest and taxes; EBITDA minus Depreciation & Amortization (D&A).

EBT

Earnings before taxes; EBIT minus Interest Expense.

Net income

Profit after taxes; EBT minus Taxes.

Tax rate

Percentage of taxable income paid as taxes (e.g., 28%).

Current ratio

Liquidity measure; Current Assets divided by Current Liabilities.

Quick ratio

Also called the acid-test; (Current Assets minus Inventory) divided by Current Liabilities.

Cash ratio

Strict liquidity measure; Cash divided by Current Liabilities.

Total debt ratio

Proportion of assets financed by debt; (Total Assets − Total Equity) divided by Total Assets.

Debt to equity ratio

Proportion of debt relative to shareholders’ equity; Total Debt divided by Total Equity.

Times interest earned

Debt-service coverage; EBIT divided by Interest Expense.

Cash coverage

Cash flow available for debt service; (EBIT + Depreciation) divided by Interest Expense.

Inventory turnover

COGS divided by Inventory; measures how many times inventory is sold in a period.

Days sales in inventory

Average number of days to sell inventory; 365 divided by Inventory Turnover.

Receivables turnover

Sales divided by Accounts Receivable; measures how quickly receivables are collected.

Days sales in receivables

Average collection period; 365 divided by Receivables Turnover.

Profit margin

Net Income divided by Sales; profitability per dollar of sales.

ROA (Return on Assets)

Net Income divided by Total Assets; overall efficiency in using assets to generate profit.

ROE (Return on Equity)

Net Income divided by Shareholders’ Equity; profitability from the owners’ perspective.

Equity

Owners’ claim on the company’s assets after liabilities; shareholders’ equity.

Assets

Resources owned by a company expected to provide future benefits.

COGS

Cost of Goods Sold; direct costs attributable to goods produced and sold.

Sales

Total revenue from goods or services sold.

Depreciation and Amortization (D&A)

Non-cash expenses recognizing wear/obsolescence of tangible assets and amortization of intangible assets.