Common Financial Ratios

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Vocabulary flashcards covering common financial ratios across liquidity, turnover, long-term debt paying ability, profitability, and stock market performance.

15 Terms

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Current Ratio

A liquidity ratio calculated as: Current AssetsCurrent Liabilities\frac{\text{Current Assets}}{\text{Current Liabilities}}

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Acid-Test Ratio

A liquidity ratio calculated as: Cash+Short-term investments+Net current receivablesCurrent liabilities\frac{\text{Cash} + \text{Short-term investments} + \text{Net current receivables}}{\text{Current liabilities}}

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Inventory Turnover

A turnover ratio calculated as: Cost of goods soldAverage inventory\frac{\text{Cost of goods sold}}{\text{Average inventory}}

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Days' sales in inventory

A turnover measure calculated as: 365 daysInventory turnover\frac{365\text{ days}}{\text{Inventory turnover}}

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Accounts receivable turnover

A turnover ratio calculated as: Net credit salesAverage net accounts receivable\frac{\text{Net credit sales}}{\text{Average net accounts receivable}}

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Collection period

A turnover measure calculated as: 365 daysAccounts receivable turnover\frac{365\text{ days}}{\text{Accounts receivable turnover}}

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Debt ratio

A long-term debt paying ability ratio calculated as: Total liabilitiesTotal assets\frac{\text{Total liabilities}}{\text{Total assets}}

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Times-interest-earned

A long-term debt paying ability ratio calculated as: Income from operationsInterest expense\frac{\text{Income from operations}}{\text{Interest expense}}

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Gross profit percentage

A profitability ratio calculated as: Gross profitNet sales\frac{\text{Gross profit}}{\text{Net sales}}

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Return on sales

A profitability ratio calculated as: Net incomeNet sales\frac{\text{Net income}}{\text{Net sales}}

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Return on assets

A profitability ratio calculated as: Net income+Interest expenseAverage total assets\frac{\text{Net income} + \text{Interest expense}}{\text{Average total assets}}

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Return on equity

A profitability ratio calculated as: Net income−Preferred dividendsAverage common shareholders’ equity\frac{\text{Net income} - \text{Preferred dividends}}{\text{Average common shareholders' equity}}

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Earnings per share

A profitability metric calculated as: Net income−Preferred dividendsAverage number of common shares outstanding\frac{\text{Net income} - \text{Preferred dividends}}{\text{Average number of common shares outstanding}}

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Price/earnings ratio

A stock market performance ratio calculated as: Market price per common shareEarnings per share\frac{\text{Market price per common share}}{\text{Earnings per share}}

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Dividend yield

A stock market performance ratio calculated as: Dividends per shareMarket price per share\frac{\text{Dividends per share}}{\text{Market price per share}}