D076 - Ratios

D076 - Ratios 5.0 (1 review) Students also studied Terms in this set (18) Social SciencesEconomics Finance Save WGU D076 Finance Skills for Manag...375 terms infinitedrifterPreview D076 Pre-Assessment 54 terms cpistocPreview D076 Finance Skills for Managers 357 terms hcashmePreview D076 210 term Col Current RatioIs a liquidity ratio. Short-term debt paying ability.Current Assets/Current Liabilities Quick RatioAlso known as acid test. Is a liquidity ratio. Provides a more accurate cash position of firm by excluding inventory from current assets.Current Assets-Inventory/Current Liabilities AR TurnoverIs an activity/asset management ratio. Helps to identify how quickly these accounts receivables turn over during a given year. A rate of 12 indicated that the company is collecting once a month. If less or decreasing then it may indicate that the company is taking longer to collect.Credit Sales/Accounts Receivable Average Collection Period (ACP)Is an activity ratio. Convert AR turnover into a day count measure.365/AR Turnover Inventory TurnoverIs an activity ratio. Measures the efficient use of inventories. A high number may indicate whether there is enough product on hand; a lower number may indicate it's taking too long to turnover inventory.Cost of Goods Sold/Inventory

Total Asset Turnover (TAT)Is an activity ratio. Is calculated to see how well a company is using its assets to generate sales. The ratio measures how many dollars in sales the firm generates per dollar of assets.Sales/Total assets Fixed Asset Turnover (FAT)Is an activity ratio. Is similar to TAT, but indicates how many dollars in sales the company generates per dollar of fixed assets (property, plant, equipment).Sales/Fixed Assets Operating Income Return on Investment (OIROI) Is an activity ratio. Tells us how much pretax, prefinancing profit the company generates per dollar per asset.Operating income (EBIT)/Total Assets Debt RatioIs a leverage ratio. Measures the proportion of the firm's assets financed with debt.Total Liabilities/Total Assets Debt-to-Equity RatioIs a leverage ratio. Indicates how many dollars of debt the firm has for every dollar of equity.Total Liabilities/Total Owners' Equity Times Interest Earned (TIE)Is a leverage ratio. Tells us how many times over a company's operating profit covers its interest expense. Ex. if ratio is 4, then for each dollar of interest due, the company has $4 available.EBIT/Interest Charges Return on Assets (ROA)Is a profitability ratio. Is used to calculate what profit/income is earned on the assets the company has. Good profitability ratio to use when benchmarking against multi-industry group.Net Income/Total Assets Return on Equity (ROE)Is a profitability ratio. Is used to calculate what profit/earnings were made for the owners/investors of the firm. Is a key ratio to assess whether a company is creating value for its owners. Owners would prefer a higher equity rate than a lower one.Net Income/Owners' Equity Gross MarginIs a profitability ratio. Measure the % of revenue remaining after the cost of goods sold have been taken out of sales. High gross margin indicates an efficient production process that minimizes waste.Gross Profit or Sales - COGS/Sales

Operating MarginIs a profitability ratio. Is the % of sales remaining after covering COGS and operating expenses. Is used to determine how well the operations of the firm is doing in terms of creating profit and value for the firm.EBIT/Sales Net (Profit) MarginMeasure the % of revenue that is retained as profit for the firm. If value is positive, then value has been created.Net Income or Op and Non Op from Revenue/Sales Market-to-Book Ratio (M/B)Is a market ratio. Used to help understand how the firm is performing in the market. Book value of equity is how much was invested in the company and how much was retained. The market value deals with how the company is being treated or invested in. If greater than 1, the firm is considered a growth stock. If less than 1, the firm is considered a value stock.Market Value of Equity/Book Value of Equity Price to EarneingsIs a market ratio. Lets investors know how much they are paying for each dollar of earnings. It is the most popular valuation method for determining how much a stock should be worth.Per per Share/Earnings per Share