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Econ 3a Final (Ch. 13 Ratios)
Terms in this set (12)
current assets/current liabilities.
Measures liquidity and short-term debt paying ability
Accounts Receivable Turnover
net credit sales/average net accounts receivable.
Measures liquidity of accounts receivable & average number of times a company collects receivables during a period
Average collection period
365 days/Accounts Receivable Turnover.
Used to assess the effectiveness of a company's credit and collection policies.
COGS / avg inventory.
Measures the number of times average inventory was sold during the period. Its purpose is to measure the liquidity of the inventory
Days in inventory
365 days/inventory turnover.
Average number of days inventory is on hand
Debt to assets ratio
(Total liabilities) / (Total assets)
Measures the percentage of total assets
provided by creditors. This ratio indicates the degree of financial leveraging. It also provides some indication of the company's ability to withstand losses without impairing the interests of its creditors.
Times interest earned
(Net Income + Interest Expense + Income Tax Expense) / Interest Expense
indicates the company's ability to meet interest payments as they come due.
Free Cash Flow
Net cash provided by operating activities - capital expenditures - cash dividends
One indication of a company's solvency, as well as of its ability to pay dividends or expand operations, is the amount of excess cash it generated after investing in capital expenditures and paying dividends.
Earnings Per Share (EPS)
net income - preferred dividends / weighted average common shares outstanding
a measure of the net income earned on each share of common stock.
a measure of the percentage of each dollar of sales that results in net income
Gross Profit Rate
gross profit/net sales
This rate indicates a company's ability to maintain an adequate selling price above its cost of goods sold.
Price Earnings Ratio
market price per share/earnings per share
measures the ratio of the market price of each share of common stock to the earnings per share. The price-earnings (P-E) ratio reflects investors' assessments of a company's future earnings.
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