FNAN 307 S.G. Exam 1: 2/2

CA/CL

Measures ability to meet current debts with current assets.

#

Liquidity

CA-inv/CL

Measures ability tomeet current debts with most-liquid (quick) current assets.

#

Liquidity

total debt/shareholders' equity(total equity)

indicates the extent to which debt financing is used relative to equity financing.

%

Leverage

total debt/total assets

Shows the relative extent to which the firm is using borrowed money.

%

Leverage

EBIT/ interest expense

indicates ability to cover interest charges; tells number of times interest is earned.

#

Leverage

annual net credit sales/receivables

Measures how many times the receivables have been turned over (into cash) during the year; provides insight into quality of the receivables.

#

Activity

365/RT

Average number of days receivables are outstanding before being collected

#

Activity

COGS/inventory

Measures how many times the inventory has been turned over(sold) during the yr; provides insight into liquidity of inventory and tendency to overstock.

#

Activity

365/IT

Average number of days the inventory is held before it is turned into accounts receivable through sales.

#

Activity

Sales/total assets

Measures the relative efficiency of total assets to generate sales.

#

Activity

Net Profit after Tax/ sales

Measures profitability with respect to sales generated; net income per dollar of sales.

%

profitability

net profit after taxes/total assets {=Net profit margin/total asset turnover}

Measures overall effectiveness in generating profits with available assets; earning power of invested capital

Profitability

net profit after taxes/ shareholders' equity

Measures earning power on shareholders' book-value investment (eat/common equity)

Profitability

1+(debt/equity)

price per share/earnings for share