Term
| Liquidity Ratios: a firm's ability to... |
|
Definition
| Make required payments; Compare assets to liabilities |
|
|
Term
| Current Ratio (Definition) |
|
Definition
Type: Liquidity
-Shows to what extent current assets can be used to pay off current liabilities; each have similar maturity dates, making them comparable |
|
|
Term
|
Definition
Current Assets
------------------
Current Liabilities |
|
|
Term
|
Definition
Type: Liquidity
Measure of firm's ability to pay off short-term debts without relying on the sale of its most illiquid assets |
|
|
Term
|
Definition
Current Assets - Most Illiquid Current Assets (such as inventory)
-----------------------------------
Current Liabilities |
|
|
Term
| Asset Management/Activity Ratios... |
|
Definition
| Indicate if a firm has the right balance of assets to sales |
|
|
Term
| Inventory Turnover (Definition) |
|
Definition
Type: Asset Management/Activity
Measures a firm's ability to turn inventory investments into sales |
|
|
Term
| Inventory Turnover (Formula) |
|
Definition
Cost of Goods Sold*
-------------------
Inventories
*Better to use CGS (vs. Sales), because that makes it a cost-to-cost comparison |
|
|
Term
| Average Collection Period / Days Sales Outstanding (Definition) |
|
Definition
Type: Asset Management/Activity
Average number of days a firm has to wait to collect on sales made on credit |
|
|
Term
| Average Collection Period / Days Sales Outstanding (Formula) |
|
Definition
Accounts Receivable
---------------------
(Annual Sales / 360 or 365) |
|
|
Term
| Fixed Asset Turnover (Definition) |
|
Definition
Type: Asset Management/Activity
Indicates how well a firm uses its PP&E to generate sales |
|
|
Term
| Fixed Asset Turnover (Formula) |
|
Definition
Sales
-------------
Net Fixed Assets |
|
|
Term
| Total Asset Turnover (Definition) |
|
Definition
Type: Asset Management/Activity
Indicates how effectively a firm uses all of its resources to generate sales |
|
|
Term
| Total Asset Turnover (Formula) |
|
Definition
Sales
-----------
Total Assets |
|
|
Term
| Debt Management / Leverage Ratios... |
|
Definition
| Indicate whether a firm has the right mix of debt and equity |
|
|
Term
|
Definition
Type: Debt Management / Leverage
Measures how much of a firm's total assets are financed by creditors, both long- and short-term |
|
|
Term
|
Definition
Total Debt
-----------
Total Assets |
|
|
Term
| Equity Multiplier (Definition) |
|
Definition
Type: Debt Management / Leverage
Assets relative to the level of equity; the higher the ratio, more debt to finance assets |
|
|
Term
| Equity Multiplier (Formula) |
|
Definition
Total Assets
------------
Total Equity |
|
|
Term
| Times Interest Earned (Definition) |
|
Definition
Type: Debt Management / Leverage
Tells the extent to which a firm's current earnings are able to meet current interest payments |
|
|
Term
| Times Interest Earned (Formula) |
|
Definition
Earnings Before Interest & Taxes, or EBIT
--------------------------------------
Interest Charges |
|
|
Term
|
Definition
| Indicate whether sales prices exceed unit costs |
|
|
Term
| Operating Margin / Operating Profit Margin (Definition) |
|
Definition
Type: Profitability
Current operations profitability without counting taxes or interest charges |
|
|
Term
| Operating Margin / Operating Profit Margin (Formula) |
|
Definition
Net Operating Income or EBIT
-----------------------------
Net Sales |
|
|
Term
| Net Margin / Net Profit Margin Ratio (Definition) |
|
Definition
Type: Profitability
Indicates how profitable a firm's sales are after all expenses (incl. taxes & interest) have been deducted |
|
|
Term
Net Margin / Net Profit Margin Ratio
(Formula) |
|
Definition
Net Income
------------
Sales |
|
|
Term
| Earning Power / Return on Assets Ratio (Definition) |
|
Definition
Type: Profitability
-Indicates firm's profitability from current operations (without taxes or interest accrued from capital structure) relative to total asset investment |
|
|
Term
| Earning Power / Return on Assets Ratio (Formula) |
|
Definition
Net Operating Profit or EBIT
------------------------------
Total Assets |
|
|
Term
| Return on Total Assets / Return on Investment Ratio (Definition) |
|
Definition
Type: Profitability
Measures firm's profitability after taxes and interest charges relative to total asset investment |
|
|
Term
| Return on Total Assets / Return on Investment Ratio (Formula) |
|
Definition
Net Income
----------
Total Assets |
|
|
Term
| Return on Stockholders' Equity / Return on Total Equity Ratio (Define) |
|
Definition
Type: Profitability
Measures rate of return earned on the investments of all stockholders |
|
|
Term
| Return on Stockholders' Equity / Return on Total Equity Ratio (Formula) |
|
Definition
Net Income
---------------
Stockholders' Equity |
|
|
Term
| Return on Common Equity Ratio (Define) |
|
Definition
Type: Profitability
Measures rate of return a firm earns on common stockholders' investment in the firm |
|
|
Term
| Return on Common Equity Ratio (Formula) |
|
Definition
(Net Income - Preferred Dividends)
------------------------------------
(Total Equity - Preferred Equity) |
|
|
Term
|
Definition
Type: Profitability
Focuses on three things to better express Return on Equity:
-Net Profit Margin
-Total Asset Turnover
-Financial Leverage |
|
|
Term
| DuPont Analysis (Formula~) |
|
Definition
(Net Income / Sales)
x
(Sales / Total Assets)
x
(Total Assets / Total Equity) |
|
|
Term
|
Definition
| Take the investor's perspective into account |
|
|
Term
| Earnings Per Share Ratio (Define) |
|
Definition
Type: Market-based
Earnings available to the owners of the firm on a per share basis after all expenses and preferred dividends have been paid
*May be basic or diluted |
|
|
Term
| Earnings Per Share Ratio (Formula) |
|
Definition
(Net Income - Preferred Dividends)
----------------------------------
Number of Common Shares |
|
|
Term
| Price to Earnings Ratio (Define) |
|
Definition
Type: Market-based
Market-determined multiple that shows how much investors are willing to pay per dollar of earnings |
|
|
Term
| Price to Earnings Ratio (Formula) |
|
Definition
Market Price per Share
----------------------
Earnings per Share |
|
|
Term
| Book Value per Share (Define) |
|
Definition
Type: Market-based
The amount per share a stockholder would receive if the firm were to liquidate (after all debts and preferred stockholders are paid) |
|
|
Term
| Book Value per Share (Formula) |
|
Definition
Common Equity
-------------------
Common Shares |
|
|
Term
| Market-to-Book / Price-to-Book Value Ratio (Define) |
|
Definition
Type: Market-based
Relative indicator of the firm's value as an operating entity versus being a liquidated entity |
|
|
Term
| Market-to-Book / Price-to-Book Value Ratio (Formula) |
|
Definition
Market Price per Share
-----------------------
Book Value per Share |
|
|
Term
| Horizontal Analysis (Define) |
|
Definition
| Looks at F/S data over time to determine whether increase or decrease has taken place |
|
|
Term
| Horizontal Analysis (Formula - Generic) |
|
Definition
(Current Year Amount) - (Base Year Amount)
----------------------------------
Base Year Amount |
|
|
Term
| Vertical Analysis (Define) |
|
Definition
Evaluate F/S data as a percentage of a whole
-Always out of Total Assets on B/S
-Always out of Net Sales on I/S |
|
|
Term
| Vertical Analysis (Formulas - Generic) |
|
Definition
On B/S: Current Year Amount / Total Assets
On I/S: Current Year Amount / Net Sales |
|
|
