Question

Please list the formula and definition of each term this will be your cheat sheet

Liquidity ratios measure

Working capital =

Current ratio =

Current cash debt coverage=

Inventory turnover=

Days in inventory=

Accounts receivable turnover=

Average collection period =

Solvency ratios=

Debt to assets ratio=

Times interest earned = e

Free cash flow =

Profitability ratios =

Earnings per share =

Price-earnings ratio =

Gross profit rate =

Profit margin =

Return on assets =

Asset turnover =

Payout ratio =

Return on common stockholders’ equity=

Answer 1

Answer is given below

Liquidity ratios measure Working capital = Current Assets - Current Liabilities Definition: Indicates the amount of working capital needed to meet day-to-day operating needs Current ratio = Current Assets Current Liabilities Definition: Current ratio indicates ratio of Current assets to Current Liabilities. Usually standard of 2:1 is preferred Current cash debt coverage= Cash flow from operations Total Liabilities* Definition : This ratio indicates the coverage of Operating cash flows to pay the total liabilities Operating cash flow is income generated from the operations of the firm. The higher the ratio it is better since liabilities can be paid off. Lower ratio will affect the solvency of the firm. Inventory turnover= Cost of Goods Sold Average Inventory Definition : This ratio indicates the turnover of inventory during the year. The higher the ratio it is good for the firm Days in inventory= 365 days Inventory Turnover Definition: This ratio indicates the inventory held as number of days. The higher the days the more is and higher working capital needed. Accounts receivable turnover= Net Credit Sales Average Accounts Receivable Definition: This ratio indicates the turnover of receivables. The higher the turnover it is better for the firm Average collection period = 365 days Accounts receivable turnover Definition : This ratio indicates the collection period in days . Lower the average collection period sooner the receivables will be collected Solvency ratios Debt to assets ratio= Total Debt Total Assets Definition: This ratio indicates the total debt in the business as a % to total assets. Higher the ratio higher is the leverage and risk involved Times interest earned = Earnings before interest and tax Interest Definition : This ratio indicates the coverage of Earnings before interest and tax for interest Higher the ratio higher is the coverage and it is good for the lenders of the business Free cash flow = Cash flow from Operating activates Less: Purchase of Fixed Assets Free cash flow Definition : This ratio indicates the cash flow available from operating activates after purchase of fixed assets Free cash flow indicates the cash flow available to shareholders for payment of dividend and financing activities Profitability ratios = Earnings per share = Net Income available to common stockholders Total Common shares Definition: This ratio indicates the net income available to common stockholders on a per share basis Price-earnings ratio = Market price per share Earning per share This ratio indicates the number of times the Earning per share commands the market share price of the firm Higher the Price earnings ratio it leads to higher market price per share Gross profit rate = Gross profit Sales Definition : This ratio indicates the gross profit ratio of the business. The higher the ratio it is good for the business Profit margin = Net profit Sales Definition : This ratio indicates the Net profit ratio of the business. The higher the ratio it is good for the business Return on assets = Net profit Average Total Assets Definition : This ratio indicates the profitability on the total assets deployed by the business. the higher the profitability the assets are profitability used Asset turnover = Sales Assets Definition: This rate indicates the turnover of the assets deployed in the business. The higher the ratio the assets are efficiently used Payout ratio = Dividend per share Earnings per share Definition: This ratio indicates the payout of dividend from the earnings per share. The higher the divided payout lower the retention for the firm. Return on common stockholders' equity= Net profit to common stockholders Common stockholders' equity Definition: This ratio indicates the profitability on the common stockholders equity. Higher the ratio it is good for the Common shareholders