shared via CourseHero com This study resource was This study source was downloaded by 100000781315468 from CourseHero com on 10 18 2021 19 33 21 GMT 05 00 https www coursehero com file 7631819 Summary of Ratios Formulas Powered by TCPDF www tcpdf org ILLUSTRATION 24A 1Summary of Financial RatiosGateway to the ProfessionFinancial Analysis PrimerYou can find additional coverage of these ratios accompanied by assignment ma terial at the book s companion website at www wiley com college kieso This supple mental coverage takes the form of a comprehensive case adapted from the annual report of a large international chemical company that we have disguised under the name of Anetek Chemical Corporation Limitations of Ratio AnalysisThe reader of financial statements must understand the basic limitations associ ated with ratio analysis As analytical tools ratios are attractive because they are simple and convenient But too frequently decision makers base their decisions 11 LEARNING OBJECTIVEExplain the limitations of ratio analysis Appendix 24A Basic Financial Statement Analysis 1549SUMMARY OF RATIOS PRESENTED IN EARLIER CHAPTERS Ratio Formula for Computation ReferenceI Liquidity 1 Current ratio Current assets Chapter 13 p 749 Current liabilities 2 Quick or acid test Cash short term investments ratio and net receivables Chapter 13 p 750 Current liabilities 3 Current cash debt Net cash provided by coverage ratio operating activities Chapter 5 p 234 Average current liabilities II Activity 4 Receivables turnover Net sales Chapter 7 p 392 Average trade receivables net 5 Inventory turnover Cost of goods sold Chapter 9 p 516 Average inventory 6 Asset turnover Net sales Chapter 11 p 627 Average total assets III Profi tability 7 Pro t margin Net income Chapter 11 p 628 on sales Net sales 8 Rate of return Net income Chapter 11 p 628 on assets Average total assets 9 Rate of return on Net income minus preferred dividends Chapter 15 p 870 common stock Average common stockholders equity equity 10 Earnings per share Net income minus preferred dividends Chapter 16 p 922 Weighted average shares outstanding11 Payout ratio Cash dividends Chapter 15 p 871 Net incomeIV Coverage12 Debt to total Total debt Chapter 14 p 808 assets ratio Total assets13 Times interest Income before income taxes earned and interest expense Chapter 14 p 808 Interest expense14 Cash debt coverage Net cash provided by ratio operating activities Chapter 5 p 234 Average total liabilities15 Book value Common stockholders equity Chapter 15 p 871 per share Outstanding shares