FINA 3310 CH 3
PRICE EARNINGS RATIO
PRICE PER SHARE/ EARNINGS PER SHARE
receivable turnover
Sales / Accounts Receivable how fast can you sell products
Equity Multiplier
total assets/ total equity
True or false: The cash ratio is found by dividing cash by current liabilities.
true
financial ratios groups
-short term solvency or liquidity ratios -long term solvency or financial leverage ratios -asset management or turnover ratios -profitability ratios -market value ratios
Long-term solvency ratios measure what aspect of the firm's financial position?
Its financial leverage
Which of the following items is added back to EBIT while calculating the cash coverage ratio, but not while calculating the times interest earned ratio?
Non-cash expenses
PRICE SALES RATIO
PRICE PER SHARE/ SALES PER SHARE
What is the impact on the total asset turnover ratio if sales increase significantly while there is no change in any of the other variables?
The total asset turnover ratio will increase.
Which one of the following best explains why financial managers use a common-size balance sheet?
To track changes in a firm's capital structure
The quick ratio provides a more reliable measure of liquidity than the current ratio especially when the company's inventory takes _____ to sell.
a long time; because inventory that is held for a long time is not very liquid.
inventory turnover
cost of goods sold / inventory
quick ratio (acid test)
current assets -inventory /current liabilities
The current ratio computes the relationship between
current assets and current liabilities
current ratio
current assets/current liabilities
True or false: If a company has inventory, the quick ratio will always be greater than the current ratio.
false
True or false: The current ratio will decrease if current assets increase, while everything else remains unchanged.
false
True or false: The times interest earned ratio is EBIT minus interest.
false
cash coverage
(EBIT + Depreciation) / Interest
Long-term solvency ratios are also known as:
financial leverage ratios
Days' sales in receivables is given by the following ratio:
365/Receivables turnover
common size statements
A standardized financial statement presenting all items in percentage terms. Balance sheet items are shown as a percentage of assets and income statement items as a percentage of sales.
How is the inventory turnover ratio computed?
Cost of Goods Sold / Inventory
times interest earned
EBIT/ interest
True or false: Blue Company and Red Company have equal levels of current assets and current liabilities. Blue Company has higher inventory levels than Red Company. Blue Company is more liquid than Red Company.
FALSE
True or false: Financial ratios are computed using only balance sheet information.
False
MARKET TO BOOK RATIO
MARKET VALUE PER SHARE/BOOK. VALUE PER. SHARE
return on equity
NET ICOME/ TOTAL EQUITY
EPS
NET INCOME/ SHARE OUTSTANDING
Which of the following represents the receivables turnover ratio?
Sales/Accounts receivable
total asset turnover
Sales/Total Assets
What does it mean when a firm has a days' sales in receivables of 45?
The firm collects its credit sales in 45 days on average.
A problem with the TIE ratio is that it is based on EBIT, which is not a measure of________ available to pay interest
cash
Which of the following items are used to compute the current ratio?
cash and accounts payable
cash ratio
cash/ current liabilities short term creditor might be interested in this
financial ratios
comparing companies and investigating relationships using financial information.
profit margin
net income / sales
return on assets
net income / total assets
Return on assets (ROA) is a measure of _____.
profitability
The profit margin is equal to net income divided by ______.
sales
The times interest earned ratio is a measure of long-term
solvency
A common-size balance sheet expresses accounts as a percentage of ______.
total assets
total debt ratio
total assets-total equity. / total. assets
debt equity ratio
total debt/ total. equity