Financial Ratios Study Guide

A complete set of vocabulary flashcards defining financial ratios for liquidity, solvency, profitability, market performance, and income position analysis based on the lecture notes.

Current Ratio

$$\frac{\text{Current Assets}}{\text{Current Liabilities}}$$

Quick (Acid-Test) Ratio

$$\frac{\text{Quick Assets}}{\text{Current Liabilities}}$$

Accounts Receivable Turnover

$$\frac{\text{Net Credit Sales}}{\text{Average Receivables}}$$

Average Age of Receivables

$$\frac{360\,\text{Days}}{\text{Receivable Turnover}}$$

Raw Materials Inventory Turnover

$$\frac{\text{Cost of Materials Used}}{\text{Average Raw Material Inventory}}$$

Work in Process Turnover

$$\frac{\text{Cost of Goods Manufactured}}{\text{Average Work in Process Inventory}}$$

Finished Goods Turnover

$$\frac{\text{Cost of Goods Sold}}{\text{Average Finished Goods Inventory}}$$

Normal Operating Cycle

$$\text{Average Age of Receivables} + \text{Average Age of Inventories}$$

Trade Payables Turnover

$$\frac{\text{Net Credit Purchases}}{\text{Average Trade Payables}}$$

Average Age of Trade Payables

$$\frac{360\,\text{Days}}{\text{Payables Turnover}}$$

Current Assets Turnover

$$\frac{\text{Cost of Sales} + \text{Operating Expenses}}{\text{Average Current Assets}}$$

Inventory Turnover

$$\frac{\text{Cost of Sales}}{\text{Average Merchandise Inventory}}$$

Debt Ratio

$$\frac{\text{Total Liabilities}}{\text{Total Assets}}$$

Equity Ratio

$$\frac{\text{Total Stockholders’ Equity}}{\text{Total Assets}}$$

Debt-Equity Ratio

$$\frac{\text{Total Liabilities}}{\text{Total Stockholders’ Equity}}$$

Times Interest Earned (TIE)

$$\frac{\text{EBIT}}{\text{Interest Expense}}$$

Gross Profit Margin

$$\frac{\text{Gross Profit}}{\text{Net Sales}}$$

Operating Profit Margin (Market Context)

$$\frac{\text{EBIT}}{\text{Net Sales}}$$

Return on Sales

$$\frac{\text{Net Income}}{\text{Net Sales}}$$

Return on Assets

$$\frac{\text{Net Income}}{\text{Average Assets}}$$

Return on Equity

$$\frac{\text{Net Income}}{\text{Average Equity}}$$

Earnings Per Share

$$\frac{\text{Net Income} - \text{Preferred Share Dividends}}{\text{Weighted Average Common Shares Outstanding}}$$

Price-Earnings (P/E) Ratio

$$\frac{\text{Market Price per Share}}{\text{EPS}}$$

Dividend Yield

$$\frac{\text{Dividends per Share}}{\text{Market Price per Share}}$$

Dividend Pay-out

$$\frac{\text{Dividends per Share}}{\text{EPS}}$$

Fixed Assets to Total Equity

$$\frac{\text{Fixed Assets or Total PPE (net)}}{\text{Total Shareholders’ Equity}}$$

Fixed Assets to Total Assets

$$\frac{\text{Fixed Assets (net)}}{\text{Total Assets}}$$

Sales to Fixed Assets

$$\frac{\text{Net Sales}}{\text{Fixed Assets (net)}}$$

Book value per share - common stock

$$\frac{\text{Common Stockholders’ equity}}{\text{Common Shares Outstanding}}$$

Times Preferred Dividend Earned

$$\frac{\text{Net Income After Taxes}}{\text{Preferred Dividends}}$$

Capital Intensity Ratio

$$\frac{\text{Total Assets}}{\text{Net Sales}}$$

Times Fixed Charges Earned

$$\frac{\text{Net Income before taxes \& fixed charges}}{\text{Fixed charges} + \text{sinking fund payment}}$$

Working Capital Turnover

$$\frac{\text{Net Sales}}{\text{Average Working Capital}}$$

Defensive Interval Ratio

$$\frac{\text{Current Liabilities}}{\text{Cash and cash equivalent}}$$

Accounts Payable Turnover

$$\frac{\text{Net Purchases}}{\text{Average accounts payable}}$$

Fixed Assets to Long-term Liabilities

$$\frac{\text{Fixed Assets (net) or Total PPE}}{\text{Long-term Liabilities}}$$

Rate of Return on Average Current Assets

$$\frac{\text{Net Income}}{\text{Average Current Assets}}$$

Rate of Return on Average Total Assets

$$\frac{\text{Net Income}}{\text{Average Total Assets}}$$

Operating Profit Margin (Income Position)

$$\frac{\text{Operating Profit or EBIT}}{\text{Net Sales}}$$

Cash Flow Margin

\frac{\text{Operating Cash Flow (Net Income} + \text{Depreciation \& Amortization Expenses)}{\text{Net Sales}}

Horizontal Analysis

$$\frac{\text{Most Recent Value} - \text{Base Period Value}}{\text{Base Period Value}}$$