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ACC 221: RATIOS

Percentage Increase
(New Amount - Prior Amount) //// Prior Amount
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Leverage
total assets //// Total equity asset to equity ratio
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Efficiency
sales ///// total assets asset turnover ratio
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Profitability
net income //// sales return on sales ratio
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Asset-Equity ratio
total assets///////// total stockholders equity --------- leverage
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asset turnover ratio
efficiency --------- Sales/ ///////// total assets
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return on sales
net income///////////// sales ------------ Profitability
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return on equity ratio
leverage * efficiency * profitability Net Income/ ///////////////// Total Stockholders Equity
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Return on Assets ratio
NET INCOME//////////// TOTAL ASSETS
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WORKING CAPITAL
CURRENT ASSETS------- CURRENT LIABILITIES
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CURRENT RATIO
CURRENT ASSETS/ /////////////// CURRENT LIABILITIES
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QUICK RATIO
In finance, the Acid-test or quick ratio or liquid ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. -------------------------- CASH +A/R + MARKET SECURITIES/////////////// CURRENT LIABILITIES
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TIMES INTEREST EARNED
Times interest earned (TIE) or interest coverage ratio is a measure of a company's ability to honor its debt payments. -------------- EARNINGS BEFORE INTEREST + TAX / ////////////////// INTEREST EXPENSE
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NUMBER OF DAYS SALES IN RECEIVABLES
AVG. ASSETS RECEIVABLE / /////////////// AVG DAILY SALES --------------- AVG ASSETS RECEIVABLE = BEG A/R BALANCE + END A/R BALANCE DIVIDED BY 2
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NUMBER OF SAYS SALES IN INVENTORY
AVG INVENTORY /////////////// AVG DAILY COST OF GOODS SOLD \...................... AVG DAILY COST OF GOODS SOLD = TOTAL COST OF GOODS SOLD////360
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CASH FLOW TO NET INCOME
CASH FROM OPORATING ACTIVITIES ////////////////// NET INCOME
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CASH FLOW ADEQUACY
Cash from Operating Activities///// [Cash used for Buildings, Land, Equipment, Other Fixed Assets, and Acquisitions of new Business]
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FREE CASH FLOW
CASH FROM OPERATING ACTIVITIES ----cash from Plant, Property and equipment----------cash from Dividends
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DIVIDENT PAYOUT RATIO
CASH DIVIDENDS//////////////// NET INCOME
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PRICE EARNINGS RATIO
MARKET PRICE OF 1 SHARE / /////////////// EARNINGS PER SHARE
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Average Common Shares Outstanding
Shares Issued and Out Standing ++ New Shares ---- Treasury Shares
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Vertical Analysis
• Shows different accounts as percentages of a total o Ex. Income statement shows each amount as a percent of Sales • Allows you to see the percent differences between years • Shows number of cents invested in each type of account for each $1 of total
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What are Common-Size statements?
• If an income statement only showed the % of Sales columns for 2008 and 2009, it would be referred to as a common-size income statement • If a balance sheet only showed the % of Total columns for 2008 and 2009, it would be referred to as a common-size balance sheet • The removal of dollar amounts serves to focus the user more on the relationship of each line item to the total o Often used to compare different companies in same industry regardless of relative size
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What is Horizontal Analysis?
• Involves calculating the dollar change and percent change for each line item on the income statement from the previous year to the current year • From this you can determine which items helps Net Income increase faster than Sales and the line items which dragged it down
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Market price of 1 Share
Earnings Per Share * Price Earnings Ratio
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