Question

Please take this list and write the formulas used for these ratios and what the ratio is telling us or used for and SUBMIT via CANVAS, also a great cheat sheet when your done so print it !

Glossary Review

Accounts receivable turnover (Links to an external site.) Asset turnover (Links to an external site.) Available-for-sale securities (Links to an external site.) Average collection period (Links to an external site.) Change in accounting principle (Links to an external site.) Comprehensive income (Links to an external site.) Current ratio (Links to an external site.) Days in inventory (Links to an external site.) Debt to assets ratio (Links to an external site.) Discontinued operations (Links to an external site.) Earnings per share (Links to an external site.) Free cash flow (Links to an external site.) Gross profit rate (Links to an external site.) Horizontal analysis (Links to an external site.) Inventory turnover (Links to an external site.) Leveraging (Links to an external site.) Liquidity ratios (Links to an external site.)

Payout ratio (Links to an external site.) Price-earnings (P-E) ratio (Links to an external site.) Profitability ratios (Links to an external site.) Profit margin (Links to an external site.) Pro forma income (Links to an external site.) Quality of earnings (Links to an external site.) Ratio (Links to an external site.) Ratio analysis (Links to an external site.) Return on assets (Links to an external site.) Return on common stockholders' equity (ROE) (Links to an external site.) Solvency ratios (Links to an external site.) Sustainable income (Links to an external site.) Times interest earned (Links to an external site.) Trading on the equity (Links to an external site.) Trading securities (Links to an external site.) Vertical analysis

Answer 1

Accounts Receivable Turnover=               Credit sales/Average Accounts Receivable

This ratio indicates the speed with which money is collected from the debtor    

               

Asset Turnover                                 =             Net sales/Net fixed Assets

The ratio indicates the extent to which the investment in fixed assets has contributed towards sales     

               

Available for sale Securities      

Available for sale securities are not actively managed and traded for a profit like trading securities. Instead, AFS are investments that the company holds and could set at any point. The intent isn’t to buy and sell these investments actively in order to turn a profit.               

Average Collection Period              =          Average debtors/Credit sales *365 days

               

Changes in Accounting Principle             

A change in accounting principle is the term used when a business selects between different generally accepted accounting principles or changes the method with which a principle is applied    

Recording and Reporting Change in Accounting Principle              

Whenever a change in principle is made by a company, the company must retrospectively apply the change to all prior reporting periods, as if the new principle had always been in place, unless it is impractical to do so

               

Comphrensive Income

Comprehensive income is the variation in a company's net assets from non-owner sources during a specific period. Comprehensive income includes net income and unrealized income, such as unrealized gains or losses on hedge/derivative financial instruments and foreign currency transaction gains or losses. Comprehensive income provides a holistic view of a company's income not fully captured on the income statement.      

               

               

Current Ratio                                       =           Current Assets / Current liabilities

The ratio is an indicator of the firm’s commitment to meet its short-term liabilities          

               

Days in inventory                               =           365 days/Inventory turnover ratio

               

The financial ratio days' sales in inventory tells you the number of days it took a company to sell its inventory during a recent year. Keep in mind that a company's inventory will change throughout the year, and its sales will fluctuate as well. Therefore, you should view this as an average from the past.         

               

Debts to assets ratio                       =             Debt/Assets

This ratio indicates the assets available for Covering Debt            

               

Discontinued Operations            

The discontinued operations refer to the operations of a business which have been abandoned, sold, or else wise disposed of. As per accounting regulations, the continuing operations are required to be reported individually in the income statement other than discontinued operations.

               

Earnings per share                        =                Earnings available to Equity Shareholders/No. of Equity shares

This indicates the earnings available to Equity shareholder          

               

Free cash flow

Free cash flow is the cash a company produces through its operations, less the cost of expenditures on assets. In other words, free cash flow (FCF) is the cash left over after a company pays for its operating expenses and capital expenditures, also known as CAPEX       

Free Cashflow =               Net income+Depreciation -Changes in working capital- Capital Expenditure

               

Gross profit rate          = Gross Profit/Sales

This ratio expresses the relationship between Gross Profit and Net sales             

               

Horizantal analysis        =               (Amount in comparision year-Amount in Base year)/Amount in base year*100

Horizontal analysis typically shows the changes from the base period in dollar and percentage. ... The percentage change is calculated by first dividing the dollar change between the comparison year and the base year by the line item value in the base year, then multiplying the quotient by 100            

               

Inventory turnover      = Cost of goods sold during the year/Average Inventory

The ratio indicates whether the investment in inventory is efficiently used and whether it is within proper limits               

               

Leveraging         

It means influence of one force over another. Since financial     

items are inter-related, change in one, causes change in profit. In the context of financial management, the term               

‘leverage’ means sensitiveness of one financial variable to change in another. The measure of this sensitiveness is               

expressed as a ratio and is called degree of leverage.    

Algebraically, the leverage may be defined as,  

Leverage = % change in one variable/% Change in some other varaible

               

Liquidity ratio                       =          Liquid assets/Current Liabilities

The ratio is also termed as Acid Test Ratio or Quick Ratio. The ratio is ascertained by comparing the liquid assets i.e.,               

current assets (excluding stock and prepaid expenses) to current liabilities         

               

Payout ratio                          =          Dividend Per Equity share/Earnings per Equity share

The ratio indicates what proportion of earning per share has been used for paying dividend       

               

Price -Earnings ratio          =          Market Price per share /Earnings per share

This ratio indicates the number of times the earning per share is covered by its market price      

               

Profitability ratio                =          Operating profit/Capital Employed

This is also called as Return on Investment (ROI) or Return on Capital Employed (ROCE) ratio. It indicates the      

percentage of return on the total capital employed in the business         

               

Profit margin                         =         Net income /Net sales

Profit margin gauges the degree to which a company or a business activity makes money.           

               

Proforma income           

A pro forma income statement is a projected income statement. Pro forma in this context means projected. An income statement is the same as a profit and loss statement, a financial statement that shows sales, cost of sales, gross margin, operating expenses, and profits.

               

Quality earnings             

A company's quality of earnings is revealed by dismissing any anomalies, accounting tricks, or one-time events that may skew the real bottom-line numbers on performance. Once these are removed, the earnings that are derived from higher sales or lower costs can be seen clearly.      

               

Ratio analysis   

Ratio analysis is the process of determining and interpreting numerical relationships based on financial statements.               

A ratio is a statistical yard stick that provides a measure of the relationship between variables or figures. This     

relationship can be expressed as percent (cost of goods sold as a percent of sales) or as a quotient (current assets               

as a certain number of times the current liabilities)         

               

Return on aseets                 =          Net income/Net assets

This ratio expresses the income earned by isong the fixed assets             

               

Return on Common shareholder's Equity=          Net profit after Interest& Tax/Net worth*100

This ratio expresess the net profit in terms of Equity share holders         

               

Solvency Ratios                =             (Net income after tax+Depreciation)/Short term liability+Long term liability

Solvency ratios, also called leverage ratios, measure a company's ability to sustain operations indefinitely by comparing debt levels with equity, assets, and earnings. In other words, solvency ratios identify going concern issues and a firm's ability to pay its bills in the long term             

               

Sustainable Income       

A sustainable income is the income a which is required by any family or company to meet all of its basic expenses in the future. It makes savings for the future while maintaining a reasonable standard of living in the present.       

Times interest earned          =       EBIT/Total interest

Times interest earned (TIE) or interest coverage ratio is a measure of a company's ability to honor its debt payments.               

               

Trading on the equity                   

Trading on equity is calculated by relating the rate of return on equity capital under the existing capital structure inclusive of debt capital to the rate of return on equity capital under an all-equity capital structure, i.e. the equivalent amount of equity share capital be raised in place of borrowed funds.     

               

Trading securities           

Trading securities are investments in debt or equity that management plans to actively trade for profit in the current period  

               

Vertical analysis              

Vertical analysis is a kind of financial statement analysis wherein each item in the financial statement is shown in percentage of the base figure. ... All the items in the balance sheet are stated as a percentage of the total assets.