Name: _____________

Financial ratios (based on Table 3.8 on Ross 8th Ed) I. Short-term solvency, or liquidity, ratios Current ratio = Current assets Current liabilities Quick ratio = Current assets – Inventory Current liabilities Cash ratio = Cash Current liabilities Net working capital to total assets = Net working capital Total assets Interval measure = Current assets Average daily operating costs

II. Long-term solvency, or financial leverage, ratios Total debt ratio = Total assets – Total equity Total assets Debt-equity ratio = Total debt/Total equity Equity multiplier = Total assets/Total equity Long-term debt ratio = Long-term debt Long-term debt + Total equity Times interest earned ratio = EBIT Interest Cash coverage ratio = EBIT + Depreciation Interest IV. Profitability ratios Profit margin = Net income Sales Return on assets (ROA) = Net income Total assets Return on equity (ROE) = Net income Total equity ROE = Net income x Sales __ x Assets_ Sales Assets Equity V. Market value ratios Price-earnings ratio = Price per share Earnings per share PEG ratio = Price-earnings ratio Earnings growth rate Price-sales ratio = Price per share Sales per share Market-to-book-ratio = Market value per share Book value per share Dividend pay-out ratio is the amount of cash paid out to shareholders divided by net income

III. Asset utilization, or turnover, ratios Inventory turnover = Cost of goods sold Inventory Receivables turnover = Sales Accounts receivable Receivable Days = Average collection period = Days sales outstanding = Receivables/(Sales/365) NWC turnover = Sales NWC Fixed asset turnover = Sales Net fixed assets Total asset turnover = Sales Total assets Inventory Conversion Period = Inventory Days = Inventory/(COGS/365) Payable Days = Payables deferral period = Payables/(COGS/365) Cash conversion cycle = inventory days+receivable days-payable days Capital intensity ratio = a firm’s total assets divided by its sales, or the amount of assets needed to generate \$1 in sales

Internal growth rate

ROA x b where b is the plowback ratio (or addition to retained earnings/income) 1 – ROA x b Sustainable growth rate = ROE x b 1 – ROE x b Nominal annual cost of trade credit= {discount%/(100-discount%)} x {365/(days credit is outstanding-discount period)}

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