ratio analysis

what is the equation for current ratio and what does it measure

current assets/current liabilities

measures how liquid assets are (how easily company can pay off debt)

what is the equation for quick ratio and what does it measure

current assets (disregarding inventory)/current assets

measures liquidity but takes out inventory since that is significantly to least liquid

what is the equation for average collection period and what does it measure

AR/(sales/365)

average days it takes to collect receivables

what is the equation for AR turnover and what does it measure

sales/AR

number of times accounts receivable are collected annually

what is the equation for inventory turnover and what does it measure

COGS/Inventory

how many times is inventory sold annuallly

what is the equation for total asset turnover and what does it mean

sales/total assets.

for x amount of assets the company is able to generate y as much. high is better (unless it is because the companies assets are old and depreciating and will generate no future rev

what is the equation for fixed asset turnover and what does it mean

sales/fixed assets

fixed assets= all non-current assets

Similar to total asset turnover but the fixed asset turnover ratio removes the management-determined current assets and compares sales solely to the long-term assets used to produce the company's product.

what is the equation for OIROI and what does it mean

operating income/total assets

shows profitability and efficiency for the per dollar amount

Measures pre-tax, pre-financing profit per dollar of assets.

what is the debt ratio and what does it mean

Debt Ratio = Total Debt / Total Assets

Compares total debt to total assets.

1-debt ratio indicates the proportion financed by equity.

what is times interest earned (formula and what it means)

Compares operating profit (EBIT) to interest expense.

Times Interest Earned = EBIT / Interest Expense

Measures the company's ability to cover its interest payments.

ROE

• High ROE indicates effective management.

• Formula: ROE = NI / Equity

ROA

NI/total assets

It shows how profitable the firm is given its asset investment.

gross margin

gross profit/sales

operating margin

operating income/sales

EBIT/sales

net margin

net income/sales

what is Return on Invested Capital (ROIC):

• ROIC = NOPAT / (Costly Capital)

• Measures return independent of financing source (debt vs. equity).

what is NOPAT

NOPAT = EBIT (1 – tax rate)

what is costly capital

Costly Capital = Interest-bearing debt + Total Equity

FCFF = ?

FCFF= EBIT – Cash Tax Payments + Depreciation – CAPEX – Increases in NWC

EVA =

NOPAT – [WACC × (Costly Capital)]

costly capital=

costly capital= equity+interest bearing debt

what are th e3 names for debt

1. debt

2. financial leverage

3. fixed income

what is plowback

retained earnings

what is IPO

initial public offering

are notes payable interest bearing?

yes

there are 4 things that link from the balance sheet to the income statement (vice versa). what are they?

1. retained earnings

2. depreciation

3. cogs —→ inventory

4. interest exp ——>debt

the cash flow after operations for only the shareholders

FCFE

cash flow after operations for creditors and shareholders

FCFF

why do we use ratios? (3)

1. historical trend analysis

2. cross-sectional analysis

3. goals

equation for equity multiplier

assets/equity

what is FSA?

financial statement analysis

what type of corporation gets double taxed?

C-corporations

CAPEX (equation and what it stands for)

Gross fixed assets (cuurent bs)-Gross fixed assets (previous bs)

Capital Expenditures

NWC

NFA(current bs)-NFA(previous bs)+DEPREC