# Shared Flashcard Set

## Details

Ratio Analysis and CVP
BU121
20
04/11/2012

Term
 What is debt to equity ratio?
Definition
 measures the relationship between the amount of debt financing (borrowing) and the amount of equity financing (owner’s fund)
Term
 What does Debt to equity mean
Definition
 indicates how much debt in ratio with equity, ratio above 100% means firm has more debt than equity therefore lenders are providing more financing than the ownersRule of thumb: <1:1investors or shareholders? Have to pay off debtors, investors only get liquidation priority
Term
 how to use Debt to equity
Definition
 calculated by dividing total liabilities by owner’s equity
Term
 What is Stability ratio?
Definition
 It measures how well a firm uses its assets.
Term
 Why use stability ratio?
Definition
 They reflect the speed with which resources are converted to cash or sales.
Term
 What is a ratio of stability? and explain it
Definition
 Inventory Turnover ratio:(calculated by dividing cost of goods sold by the average inventory) measures the speed with which inventory moves through the firm and is turned into sales. The acceptable turnover ratio depends on the line of business.
Term
 What is profitability ratio?
Definition
 -it measures how well the firm is using its resources to generate profit and how efficiently it is being managed
Term
 Why use profitability ratio?
Definition
 A firm’s profits can be related to its sales, equity, or shares value
Term
 What are the main profitability ratios? And expand on them.
Definition
 Net Profit margin, Gross profit margin, return on investmentNet profit margin: measures how much profit each sales dollar generates generate during the period; a high or rising ratio suggests that the company is managing its sales and expenses efficiently.Gross Profit Margin: what remains from sales after a company pays out the cost of goods sold.Return on investment: measures how effectively the firm uses its capital to generate profit; the higher the ROI the better
Term
 What is marketability ratio?
Definition
 It measures the degree and effect of the firm’s use of borrowed funds (debt) to finance its operations.
Term
 Why would you use marketability ratio?
Definition
 They want to make sure the firm has a healthy mix of debt and equity. If the firm relies too much on debt, it might have trouble meeting interest payments and repaying loans.
Term
 What are the main stability ratio?
Definition
 Debt to equity, leverage, interest coverage ratio
Term
 What is leverage?
Definition
 It measures the degree to which a company had locked itself into fixed financial costs; implies that a given change in sales will result in a greater change in profit.
Term
 What is interest coverage ratio?
Definition
 a calculation of a company's ability to meet its interest payments on outstanding debt
Term
 Explain the different types of marketability ratios.
Definition
 Price/Earnings ratio, Earnings per share, dividend yield ratio, and divident payout.Price/Earnings ratio: measures the multiple of current year's earnings that investors are willing to pay for the company's shares.Earnings per share: measure of the reutn on investment that is based on the number of shares outstanding.Dividend yield ratio: a measure of the percentage return that shareholders earn from the dividends they receive. Dividend payout: the amount of cash that a company sends to its shareholders in the form of dividends.
Term
 What is CVP analysis
Definition
 -it is the effect of changes in Costs or Volumes on Profits-Tool used for decision-making
Term
 What is CVP's impact?
Definition
 Shows impact of operating leverageDegree to which locked into fixed operating costs-Must sell more to cover fixed costs (Risk)-But once covered- Leveraged effect on profit (return)
Term
 What is CVP also used for
Definition
 -It is also used for 'Breakeven' Analysis-Revenues= expenses or (Revenue-Expenses=0)
Term
 What are fixed costs?
Definition
 -Constant regardless of level of production and sales-example: rent, insurance, salaries
Term
 What is variable costs?
Definition
 -Total depends on level of production and sales-increases/decreases with changes in level of production
Supporting users have an ad free experience!