Business Finance - Chapter 3

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cash coverage ratio

(EBIT + depreciation)/interest expense

internal growth rate

(ROA x b)/(1 - ROA x b)

sustainable growth rate

(ROE x b)/(1 - ROE x B)

quick ratio

(current assets - inventory)/current liabilities

total debt ratio

(total assets - total equity)/total assets

return on equity (ROE)

a measure of profitability

retention ratio

addition to retained earnings(net income-dividends)/net income

cash and accounts payable

are used to compute the current ratio

exception

financial statement analysis is primarily "management by ______"

profit margin

net income/sales

return on equity (ROE)

net income/total equity

return on assets (ROA)

net income/total equity (a measure of profitability)

price-earnings ratio

price per share/earnings per share

price-sales ratio

price per share/sales per share

receivables turnover

sales/accounts receivable

total asset turnover

sales/total assets

financial ratio categories

short term solvency, or liquidity ratios long term solvency, or financial leverage ratios asset management, or turnover ratios profitability ratios market value ratios

what does it mean when a firm's day sales in receivables are 45?

the firm collects its credit sales in 45 days on average

book values and historical values

the major downside to using financial statements for analysis is that data contained in them is based on ________ and __________

management by exception

time trend analysis is an example of

equity multiplier

total assets/total equity

debt to equity ratio

total debt/total equity

days sales

365/turnover

Financial Ratios

Are developed from a firm's financial information Are used for comparison purposes

times interest earned ratio

EBIT/interest

created value

a firm with a market to book value that is greater than one is known to have a _____ for shareholders

market value ratio

What kind of ratio is a PE ratio?

dupont identity

can help to explain why two firms with the same return on equity may not be operating the same way

dividend payout ratio

cash dividends/net income

cash ratio

cash/current liabilities

inventory turnover

cost of goods sold/inventory

price-sales ratio

if a company has had negative earnings for multiple pay periods they might choose to use a _______

market to book ratio

market value per share/book value per share


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