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ACC 221: RATIOS
Percentage Increase |
(New Amount - Prior Amount) //// Prior Amount
|
Leverage |
total assets ////
Total equity asset to equity ratio
|
Efficiency |
sales /////
total assets asset turnover ratio
|
Profitability |
net income ////
sales return on sales ratio
|
Asset-Equity ratio |
total assets/////////
total stockholders equity --------- leverage
|
asset turnover ratio |
efficiency ---------
Sales/ ///////// total assets
|
return on sales |
net income/////////////
sales ------------ Profitability
|
return on equity ratio |
leverage * efficiency * profitability
Net Income/ ///////////////// Total Stockholders Equity
|
Return on Assets ratio |
NET INCOME////////////
TOTAL ASSETS
|
WORKING CAPITAL |
CURRENT ASSETS-------
CURRENT LIABILITIES
|
CURRENT RATIO |
CURRENT ASSETS/ ///////////////
CURRENT LIABILITIES
|
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
|
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
|
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
|
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
|
CASH FLOW TO NET INCOME |
CASH FROM OPORATING ACTIVITIES //////////////////
NET INCOME
|
CASH FLOW ADEQUACY |
Cash from Operating Activities///// [Cash used for Buildings, Land, Equipment, Other Fixed Assets, and Acquisitions of new Business]
|
FREE CASH FLOW |
CASH FROM OPERATING ACTIVITIES ----cash from Plant, Property and equipment----------cash from Dividends
|
DIVIDENT PAYOUT RATIO |
CASH DIVIDENDS////////////////
NET INCOME
|
PRICE EARNINGS RATIO |
MARKET PRICE OF 1 SHARE / ///////////////
EARNINGS PER SHARE
|
Average Common Shares Outstanding |
Shares Issued and Out Standing ++ New Shares ---- Treasury Shares
|
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
|
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
|
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
|
Market price of 1 Share |
Earnings Per Share * Price Earnings Ratio
|