Bus. Adm 201 Lecture 3Outline of Last Lecture II. More on Financial StatementsIII. Current AssetsIV. The Classified Balance SheetV. Long-term InvestmentsVI. PP&EVII. Intangible Assets, Long-term Liabilities, Current Liabilities, Stockholders’ EquityOutline of Current Lecture VIII.Profitability RatiosIX. Current Ratio FormulaX. Debts to total assetsXI. Free Cash Flow RatioCurrent LectureProfitability Ratios: measures the success of a company’s ability to generate a profitRatio Discussed: Earnings Per Share (EPS)EPS = (Net Income – Preferred Dividends) / Average Common Shares OutstandingLiquidity Ratios: measures short-term ability of company to pay its debtsRatio Discussed: Working Capital Current RatioWorking Capital Equals: Current Assets – Current LiabilitiesCurrent Ratio Formula: Current Assets Current Liabilities Express as X:1- The more working capital and higher current ratio, the more likely current liabilities will be paid when dueThese 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.- Lenders often require that the company maintain a 2:1 ratio at all timesSolvency Ratios: measures of the ability of a company to survive over a long period of timeRatios Discussed: Debt to Asset percentage Free cash flowDebts to Total Assets Ratio Formula:Total Liabilities / Total Assets(multiply by %100 to create %)Note: Often used in risk analysis. The greater the debt to asset ratio the greater the risk.Free Cash Flow Ratio:Cash provided by operations – Capital expenditures – Dividends paid = Free Cash FlowNote: Considered as excess cash available after spending to maintain operations and satisfy