ACC 255 - Final Exam (Ratio Analysis)

NAU

What ratios are involved in the Return to Shareholders section?

• Return on Equity

• Return on Assets

What ratios are involved in the Profitability section?

• Profit Margin

• Gross Profit

What ratios are involved in the Asset Management Section?

• Asset Turnover

• Receivables Turnover

• Average collection period

• Inventory Turnover

• Average days in inventory

What ratios are involved in the Credit Risk Management section?

Liquidity: (short term debt)

• Current Ratio

• Acid-Test Ratio

Solvency: (long-term debt)

• Debt-to-equity ratio

• Times interest earned ratio

What ratios are involved in the Valuation section?

• Price earnings ratio

• Earnings per share ratio

What is the purpose for the Return on Assets Ratio? High or Low?

• measure the amount of income earned per every $1 of assets

• high

What is the purpose for the Return on Equity Ratio? High or Low?

• measure the amount of income earned per every $1 of equity

• high

What is the purpose for the Profit Margin Ratio? High or Low?

• measure how much income is earned for every $1 of sales

• high

What is the purpose for the Gross Profit Ratio? High or Low?

• measure how many times greater net sales are in comparison to COGS

• high

What is the purpose for the Asset Turnover Ratio? High or Low?

• measure how well the company is using their assets to generate income

• high

What is the purpose for the Inventory Turnover Ratio? High or Low?

• measures how many times a company sells through their inventory in a year

• high

What is the purpose for the Average Days in Inventory Ratio? High or Low?

• measures how many days, on average, it takes a company to sell through their inventory

• low

What is the purpose for the Receivables Turnover Ratio? High or Low?

• measures the # of times a year a company collects their A/R

• high

What is the purpose for the Average Collection Period Ratio? High or Low?

• measures the # of days, on average, their accounts receivable balance is outstanding

• low

What is the purpose for the Current Ratio? High or Low?

• measures a company’s ability to pay for every $1 of current liabilities using their current assets

• high

What is the purpose for the Acid-test Ratio? High or Low?

• measure how many “quick assets” are available per every $1 of current liabilities

• high

What is the purpose for the Debt-to-equity Ratio? High or Low?

• measures the amount of debt per every $1 of equity

• low

What is the purpose for the Times interest earned ratio? High or Low?

• measures how many “times” greater interest earnings are than interest expense

• high

What is the purpose for the Price earnings ratio? High or Low?

• measures an investor’s expectations for growth over time

• high

What is the purpose for the Earnings per share? High or Low?

• measures the amount of profit generated for each outstanding share of common stock

• high