ACC 221 1st Edition Lecture 37 Outline of Previous Lecture Section 36 Red Company Chapter 3 Chapter 3 o Dupont Analysis Outline of Current Lecture Section 37 Red Company Chapter 4 Chapter 4 o Profitability o Cost of goods sold o Efficiency o Leverage o Interest Coverage Current Lecture Section 37 Red Company Chapter 4 Chapter 4 o Profitability Gross Profit Margin How many cents of each 1 of net sales are left after deducting cost of goods sold Gross profit net sales 100 GPM Better if higher Operating Profit Margin How many cents of each 1 of net sales are left after deducting operating expenses from gross profits Operating income net sales OPM Better if higher Net Profit Margin Net income net sales NPM Better if higher o Cost of goods sold Decrease favorable impact Purchase products more effectively Produce efficiently These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Market more effectively increase prices o Efficiency Accounts receivable turnover ratio Net sales average accounts receivable net times Better if higher Number of days sales in receivables 365 accounts receivable turnover ratio days Better if lower Inventory turnover ratio Cost of goods sold average inventory times Better if higher Number of days sales in inventory 365 inventory turnover ratio days Better if lower Accounts payable turnover ratio Cost of goods sold Average accounts payable times Better if lower Number of days purchases in accounts payable 365 accounts payable turnover ratio days Better if higher Cash to cash cycle Days sales in inventory days purchases in accounts payable number days sales in receivables Better if lower Fixed asset turnover ratio Net sales average net fixed assets Better if higher o Leverage Debt Total liabilities total assets May be better higher or lower Debt to Equity ratio Total liabilities total stockholders equity May be better higher or lower o Interest coverage Times interest earned ratio Net income interest expense provision for income taxes Better if higher
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