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MAS

Financial Statement
Ratios
Q&A
FORMULAS

compiled by Kathleen Suello

Gross Margin
Gross Margin
Sales
Measure of profitability

Earnings Per Share (CS)


Net Income Preferred Dividends
Avg. # of Common Shares Outstanding

Affects market price per share as


reflected in the price-earnings ratio

Price-Earnings Ratio
Market Price per Share
Earnings per Share
An index of whether a stock is
relatively cheap or relatively
expensive in relation to current
earnings.

Dividend Payout Ratio


Dividends per Share
Earnings per Share
An index showing whether a
company pays out most of its
earnings in dividends or reinvests the
earnings internally.

Dividend Yield Ratio


Dividends per Share
Market Price per Share

Shows the return in terms of cash


dividends being provided by a stock.

Return on Total Assets


(Net Income + {Interest Exp.
X (1-Tax %)}]
Average Total Assets

Measures how well the assets have


been employed.

Return on Common Stockholders


Equity
(Net Income Preferred Dividends)
Avg. Total stockholders Equity Average Preferred
Stock

When compared to the return on


total assets, measures the extent to
which financial leverage is working
for or against common stockholders.

Book Value per Share


Total Stockholders Equity Preferred Stock
# of Common shares outstanding

Measures the amt. that would be


distributed to common stockholders
if all assets were sold @ their
balance sheet carrying amts. And if
all creditors were paid off.

Working Capital
Current Assets Current
Liabilities
Measures the companys ability to
repay current liabilities using only
current assets.

Current Ratio
Current Assets Current
Liabilities
Test of short term debt-paying ability.

Acid-Test Ratio
Cash + Marketable Securities + Accounts Receivable +
Short term Notes Receivable
____________________________________________________________

Current Liabilities

Test of short- term debt paying ability


without having to rely on inventory.

Accounts Receivable Turnover


Sales on Account
Avg. AR balance
Measures how many times a
companys accounts receivable have
been turned into cash during the
year.

Average Collection Period


365 days
____________________
AR Turnover

Measures the average number of


days taken to collect an account
receivable.
Collection Period

Inventory Turnover
Cost of Goods Sold
Avg. Inventory balance
Measures how many times a
companys inventory has been sold
during the year.

Average Sale Period


365 days
_______________
Inventory Turnover

Measures the average number of


days taken to sell the inventory one
time.
Inventory Days

Times Interest Earned


EBIT
___________
Interest Expense

Measures the companys ability to


make interest payments.

Debt-to Equity Ratio


Total Liabilities
Stockholders Equity

Measures the amount of assets being


provided by creditors for each dollar
of assets being provided by the
stockholders

Return on Sales
Net Income
Net Sales
Also called net profit rate, net profit
margin; measures profit percentage
per peso sales

Return on Stockholders Equity


.

Net Income

Avg. Stockholders Equity

Measures percentage of income


derived from every peso of owners
equity.

Payable Turnover
Net Credit Purchases
Avg. Trade Payables
Measures the effectiveness of using
trade credit facility from suppliers.

Payable Days
.

360

Payable Turnover
Indicates the number of days spent
before paying liabilities to
merchandise suppliers.

Materials Turnover
Materials Used
Avg. materials inventory
Indicates the # of times the
materials were used on the average
during the period.

WIP Turnover
Cost of Goods
manufactured
Avg. WIP inventory
Indicates the number of times avg.
WIP inventories is converted to
finished goods.

Finished Goods Inventory


Cost of Goods Sold
Avg. Finished Goods Inventory

Indicates the number of times avg.


finished goods is sold during the
period.
Inventory turnover hehe

Cash Turnover
Cash Operating
expenses
Avg. Cash Balance
Measures the ability of the business
to meet operating expenses
payments given a particular cash
balance.

Days to pay Operating Exp.

360

Cash Turnover
Indicates the # of days spent before
meeting operating expense
payments.

Working Capital Turnover


Net Sales
Avg. Working Capital
Measures the adequacy and effective
use of working capital; indicates the
reasonableness of the amount of
current assets.

Assets Turnover
Net Sales
Avg. Total Assets
Measures the effectiveness of asset
utilization.

Current Assets Turnover


Net Sales

excluding
Depn. & Amort.

Avg. Current Assets


Indicates the reasonableness of the
amount of current assets.

Defensive-Interval Ratio
Defensive Assets
Avg. Daily Expenditures
Measures the number of day
defensive assets are available to
meet daily cash expenses. Defensive
assets include cash, marketable
securities and trade receivables.

Operating Leverage
Contribution Margin
EBIT
Measures the number of times profit
will increase or decrease in relation
to change net sales.
Degree of operating leverage

Times Preferred Dividend Earned


Net Income
Preferred Dividend
Requirements

Measures the adequacy of current


earnings to meet preferred dividends
requirements.

Operating Turnover
Collection Period +
Inventory Days
Collection period = Avg. Collection
period
Inventory Days = Avg. Sale Period
Measures the speed of the business
cycle; the # of days cash was
invested in the normal business
operations until it was recovered

Debt-to-Assets Ratio
Total debt
Total Asset
Measures the relative share of
creditors over the total resources of
the firm.

Equity-to-Assets Ratio
Net Stockholders Equity
Total Assets
Equity Ratio
Measures the amount of resources
provided by the owners of the firm.

Equity Multiplier
Total Assets (Equity)
Net Stockholders Equity

Indicates the number of times


owners equity is multiplied.

Financial Leverage
.

EBIT

EBIT- interest exp preferred


dividends b4 tax

Measures the risk associated in using


debt to finance investments.

Total Leverage
Degree of operating leverage
x
Degree of financial leverage

Measures the overall leverage of the


business, it indicates the variability
of stockholders equity with respect to
changes in contribution margin,
EBIT, interest expense, and
preferred dividends before tax.

Fixed Charges Rate


Cash flows before fixed charges
Total fixed charges

Measures the ability to meet fixed


charges by cash.
Examples of fixed charges:
- rent
- taxes
- insurance - depreciation

Total Assets-to-Total Liabilities Ratio

Total Assets
Total Liabilities
A rough estimate of the firms ability
to meet interest payments to
creditors.

Noncurrent Assets-To-Long term


Liabilities Ratio

Non-Current Assets
Long-Term Liabilities
Shows the capability to meet noncurrent liabilities using non-current
resources.

Cash Flow Adequacy


Cash From Operations
Long-Term Debt Paid + Purchases
of Assets

Long-Term Debt Payment


Long-Term Debt Payments
Cash From Operations

Dividend Payout on Cash from


Operations

Dividends
Cash from Operations

Reinvestment
Purchase of Assets
Cash from Operations

Total Debt Coverage


Total Liabilities
Cash from Operations

Depreciation-Amortization Impact

Depreciation + Amortization
Cash from Operations

Cash Flow to Sales


Cash from Operations
Sales

Cash Flow to Net Income


Cash from Operations
Income from Ordinary
Operations

Cash Flow Return on Sales


Cash from Operations
Total Assets

END

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