Accounting Ratios

• Current Assets
• Current Liabilities

• - measure of liquidity - a company has sufficient liquid assets to cover its current obligations
• - the higher the ratio the better - if less than one can't pay bills

• Net Income
• Ave. Total Assets
• - in %
• - measure of how well a company uses its assets to create profits
• -used by investors to evaluate company leadership

• Net Income
• Ave. Equity

• - as %
• - measures the success of a company's financing, investing, and operating activities
• - high return = sound investment

• Total Liabilities
• Total Liabilities + Equity
• - as %
• - the more outstanding debt a company has, the more its earnings must go to making the payments on this debt load.
• - the more debt a company carries, the more the company is effectively owned by its lenders

• Cost of Goods Sold
• Average Inventory

• - measures the success a company has in turning inventory into sales
• - # of times a company sells and replaces its inventory during year

• 365
• Inventory Turn

- the number of days sales, on average that a firm carries in inventory

• Current Assets - Inventory
• Current Liabilities

- Stringent test that indicates whether a company has enough current assets to cover immediate liabilities w/o selling inventory

• Sales
• Ave. Net Accts. Rec.

- the # of times accts. rec. are turned over or collected during the period

• 365
• Accts. Rec. Turn

- # of days it takes on average to collect an account receivable

• Assets - Liabilites (OR Owners Equity)
• # of shares of C/S at the end of the year

- the dollar amount of equity that is associated with each share of stock

• Market Price per Share
• Earnings per Share

- tells you how expensive a share of stock is in relation to its earnings.