Term
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Definition
NI/(NI + Int)
- Compares the returns to shareholders to the returns available to all capital providers
- High levels indicate shareholders are getting most the returns
- High ratios show leverage is being used effectively |
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Term
| Capital Structure Leverage |
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Definition
TA/SE
- Measures the extent to which a company relies on borrowing
- As liabilities increase, the ratio increases
- High levels indicate high levels of risk and large potential earning power |
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Term
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Definition
LT Liabilities/SE
- Measures the importance of long-term liabilities as a source of asset financing |
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Term
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Definition
Current Assets/Current Liabilities
- What is our solvency position?
- Higher indicates a netter ability to meet current obligations as they come due |
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Term
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Definition
(Cash + ST Investments + A/R)/Current Liabilities
- More stringent test of solvency
- Extent of liquid assets available and obligations coming due soon |
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Term
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Definition
(NI + Tax Expense + Int)/Int
- Compares annual funds available to meet interest to the annual interest expense
- Increasing levels shows that the company is more solvent
- Increasing shows a better ability to meet interest payments as they come due |
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Term
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Definition
COGS/(A/P)
- How quickly, on average, suppliers are paid off
- The extent to which a/P is used as asset financing
- Number of times paid off |
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Term
| What do asset turnover ratios do? |
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Definition
| Compare asset investments to how much revenue they generate |
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Term
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Definition
Sales/TA
- The speed with which all assets are used up in operations
- Measure of efficiency
- How well are our assets generating revenue |
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Term
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Definition
Sales/(A/R)
- Measures the effectiveness of credit-granting and collection activities of the company
- High rate shows the company is very effective and efficient in collection |
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Term
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Definition
COGS/Inventory
- Measures the speed with which inventory moves through operations
- An increase is usually desirable
- Too high of rates indicate inventory levels are too low |
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Term
| Fixed (NC) asset turnover |
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Definition
Sales/FA
- Compares the average level of FA to the sales for the year
- Level of fixed asset investment necessary to generate the annual sales volume) |
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Term
| Working Capital Investment |
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Definition
A/R Turnover (days) + Inventory Turnover (days) - A/P Turnover (days)
- Measure of how much at any one time do you have invested in working capital |
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Term
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Definition
| Expenses expressed as a percentage of sales |
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Term
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Definition
(NI+Int)/Sales
- Provides an indication of the company's ability to generate and market profitable products and control its costs |
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Term
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Definition
(NI+Int)/TA
- Compares the returns to both shareholders and creditors to total assets, the total resources provided by shareholders and creditors
- How efficiently are your assets generating revenues |
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Term
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Definition
NI/SE
- Measure of efficiency with which the shareholder's investment is being managed
- Used to compare to alternative investments |
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Term
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Definition
Capital Structure Leverage
Common Equity Leverage
Long-term debt ratio |
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Term
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Definition
Current Ratio
Quick Ratio
Interest Coverage Ratio
A/P Turnover |
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Term
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Definition
Asset Turnover
A/R turnover
Inventory Turnover
Fixed (NC) Asset Turnover
Working Capital Investment |
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Term
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Definition
CS Income Statement
Profit Margin |
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Term
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Definition
Return on Assets
Return on Equity |
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Term
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Definition
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Term
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Definition
| ROA = PM x Asset Turnover |
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Term
| On the ROE model, which ratios go into Profit Margin? |
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Definition
COGS/Sales
SG&A/Sales
Interest/Sales
Other gains or losses/Sales |
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Term
| On the ROE model, what goes into Asset Turnover? |
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Definition
Inventory Turnover
A/R Turnover
FA Turnover
Working Cap. Investment |
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Term
| What two areas do the solvency ratios affect? |
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Definition
| Asset Turnover and Leverage |
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Term
| What is the Leverage effect comprised of? |
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Definition
| Capital Structure Leverage x Common Equity Leverage |
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Term
| What 4 solvency ratios affect Asset Turnover and Leverage effect? |
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Definition
Current Ratio
Quick Ratio
A/P Turnover
Interest Coverage Ratio |
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