Financial Ratios

Asset Turnover Ratio

* Asset turnover is the ratio of total sales or revenue to average assets. * This metric helps investors understand how effectively companies are using their assets to generate sales. * Investors use the asset turnover ratio to compare similar companies in the same sector or group. * A company's asset turnover ratio can be impacted by large asset sales as well as significant asset purchases in a given year.

Inventory ratio turnover

* Inventory turnover shows how many times a company has sold and replaced inventory during a given period. * This helps businesses make better decisions on pricing, manufacturing, marketing, and purchasing new inventory. * A low turnover implies weak sales and possibly excess inventory, while a high ratio implies either strong sales or insufficient inventory.

Profit Margin Ratio

* Profit margin conveys the relative profitability of a firm or business activity by accounting for the costs involved in producing and selling goods. * Margins can be computed from gross profit, operating profit, or net profit. * The greater the profit margin, the better, but a high gross margin along with a small net margin may indicate something that needs further investigation.

Return on Assets

* Return on Assets (ROA) is an indicator of how well a company utilizes its assets, by determining how profitable a company is relative to its total assets. * ROA is best used when comparing similar companies or comparing a company to its previous performance. * ROA takes into account a company's debt, unlike other metrics, such as Return on Equity (ROE)

Return on Equity

* Return on equity (ROE) measures how effectively management is using a company's assets to create profits. * Whether an ROE is considered satisfactory will depend on what is normal for the industry or company peers. * As a shortcut, investors can consider an ROE near the long-term average of the S&P 500 (14%) as an acceptable ratio and anything less than 10% as poor.

Current ratio

* The current ratio compares all of a company's current assets to its current liabilities. These are usually defined as assets that are cash or will be turned into cash in a year or less, and liabilities that will be paid in a year or less. * The current ratio is sometimes referred to as the "working capital" ratio and helps investors understand more about a company's ability to cover its short-term debt with its current assets. * Weaknesses of the current ratio include the difficulty of comparing the measure across industry groups, overgeneralization of the specific asset and liability balances, and the lack of trending information.

assets formula

Assets = Liabilities + Equity ; +- = -+ & -+

ROE formula

Net Income/Equity

Profit Margin ratio formula

Net Income/Net Sales Revenue

ROE ratio formula

Net Income/Shareholder's Equity

ROA formula

Net Income/Total Assets

ROA ratio formula

Net Income/Total Assets

asset turnover ratio formula

Net Sales Revenue / Average Total Assets

financing cash flow

Related to external sources of financing--issuing stock or bonds, retiring stock or bonds; payment of dividends and settling of bonds payable

what are example assets

cash, accounts receivable, inventory, land , property, plant , and equipment

list all assets accounts

cash; accounts receivable; inventories (raw materials, work in process, and merchandise), prepaid insurances, land, buildings and equipment, and accumulated depreciation

list all shareholder's equity accounts

common stock; paid in capital ; retained earnings; sales revenue, cost of goods sold, salary expenses, insurance expenses, depreciation expenses, income tax expenses

if have more accounts receivable

have less cash so subtract; because people owe you money you have less cash

if have decrease in accounts receivable

have more cash than would have otherwise so add; because people owe you money you have less cash

contributed capital

how much capital the shareholders have invested

liabilities

how much the company owes

retained earnings or net income

how the company performed

revenues _____ retained earnings

increase

revenues

increase retained earnings; are typically cash or claims to cash that are earned thorugh the selling of goods or services

gains

inflows of assets that are not generated through the ordinary course of business

where should proceeds go for cash flow

investing

what of central formula is income taxes payable

liabilites

what of central formula is accoutns payable

liabilities

what of central formula is bonds payable

liabilities

payable means

liability

what of central formula is a loan

liability

what of central formula is accounts payable

liability

cash from operation activities formula

net income + depreciation expense - increase in accounts receivable - decrease in accounts payable - the gain of sale + decrease in accounts receivable

where should gains and losses go for cash flow

operations

losses

outflows of assets that are not generated through the ordinary course of business

dividends

payments of cash from a corporation to its stockholders; type of retained earnings

operating cash flow

primary business activities--selling goods or rendering services; interest income, dividends received

cash from investing activities formula

proceeds from sale - purchases of equipment

what does P&L stand for

profit and loss

net income formula

revenues - expenses + gains - losses

Net income formula

sales - expenses

Asset Turnover ratio formula

sales revenues / total assets

expenses are

shareholders equity

what of central formula is common stock

shareholders equity

what of central formula is cost of goods sold

shareholders equity

what of central formula is depreciation expenses

shareholders equity

what of central formula is income tax expenses

shareholders equity

what of central formula is insurance expenses

shareholders equity

what of central formula is paid in capital

shareholders equity

what of central formula is retained earnings

shareholders equity

what of central formula is salary expenses

shareholders equity

what of central formula is sales revenue

shareholders equity

what of central formula contributed capital

stockholder's equity

what of central formula retained earnings

stockholders equity

who are the firm's stakeholders

stokeholders; creditors; suppliers; employees; customers; IRS, competitors

cash flow statement

the statement sums to the actual change in cash and cash equivalents during the year; operating, investing, and financing

accumulated depreciation

the total amount of depreciation expense that has been recorded since the purchase of a plant asset; is credit on asset and debit on shareholders equity for Retained Earnings Expenses

assets

what a company owns; anything of value owned by a business

if have less accounts payable

you have less cash ; lesss money to give out

Debt to equity ratio

* The debt-to-equity (D/E) ratio compares a company's total liabilities to its shareholder equity and can be used to evaluate how much leverage a company is using. * Higher leverage ratios tend to indicate a company or stock with higher risk to shareholders. * However, the D/E ratio is difficult to compare across industry groups where ideal amounts of debt will vary. * Investors will often modify the D/E ratio to focus on long-term debt only because the risk of long-term liabilities are different than for short-term debt and payables.

Activity Financial Ratios

*Asset Turnover *Days Receivable *Inventory Turnover

Leverage Financial Ratios

*Current Ratio *Debt-to-Equity

Profitability Financial Ratios

*ROA *ROE *Profit Margin

Debit credit for assets

+ / -

debit credit for equity

- / +

debit credit for liabilities

- / +

Days Receivables ratio formula

Accounts receivable / (Sales / 365)

Liabilities

Amounts owed to creditors/ what a company owns

accounts payable

Amounts to be paid in the future for goods or services already acquired; money owed by a company to its creditors ; is a liability

Accounts Receivable

Amounts to be received in the future due to the sale of goods or services

accounts receivable

Amounts to be received in the future due to the sale of goods or services; total amount of money owed to a business ; is an asset

retained earnings

An amount earned by a corporation and not yet distributed to stockholders. They represent returns on total stockholders' equity reinvested back into the company. --> can be revenue, dividends, and expense. Part of shareholders equity. Increased by revenue and decreased by expenses

revenue

An increase in owner's equity resulting from the operation of a business; retained earnings

Inventory ratio turnover formula

Cost of Sales/ Inventory

expenses

The cost of assets consumed or services used in the process of generating revenues; type of retained earnings. They decrease retained earnings. Are outflows of cash or claims to cash that are incurred to generate reveneues

Stockholders' Equity

The owners' claim to assets in a coropration

operating cash flows

Those cash flows that arise from normal operations; the difference between cash collections and cash expenses associated with the manufacture and sale of inventory.

dividend payable

a current liability resulting from a corporation's directors declaring a cash dividend.

what is accounting

accounting is the process of conveying information to the firm's stakeholders

list all liabilities accounts

accounts payable, income taxes payable; bonds payable

days of receivables ratio formula

accounts receivable / (revenue*days)

investing cash flow

acquiring and selling productive assets-- acquisition and disposal of PPE ; purchase/sale of securitites: other firms' stock or bonds

depreciation expense

alwasy add it back to net income for cash flow

types of RE

are all in shareholders equity: revenue, dividends, expenses

what of central formula are property, plant, and equipments

asset

what of central formula is accounts receivable

asset

what of central formula is cash

asset

what of central formula is inventory

asset

what of central formula is land

asset

what of central formula is accumulated depreciation

assets

what of central formula is buildings and eqipment

assets

what of central formula is inventories

assets

what of central formula is is land

assets

what of central formula is prepaid insurances

assets

what of central formula is merchandise

assets; inventories

what of central formula is raw materials

assets; inventories

what of central formula is work in process

assets; inventories

Ending retained earnings formula

beginning retained earnings + net income - dividends

investing cash flows

cash transactions involving purchase and sale of long-term assets

Inventory turnover ratio formula

cost of goods sold/average inventory

Current Ratio formula

current assets / current liabilities

current ratio formula

current assets / current liabilities

expenses ______ retained earnings

decrease

central formula

total assets = total liabilities + total stockholders equity

debt-to-equity ratio ratio formula

total liabilities / equity

leverage ratio formula

total liabilities / total assets

Debt-to-equity ratio formula

total liabilities/shareholders equity