Calculations

1. Calculations • Lindsay Rodrigue • Accounting 30 • Ms. Lozinski • May 29, 2001

2. In this presentation, various calculations used in Accounting 30 will be displayed and explained.

3. Earnings Performance Analysis • Rate Earned on Average Total Assets • Rate Earned on Average Stockholder’s Equity • Rate Earned on Net Sales • Earnings per Share • Price-Earnings Ratio

4. Rate Earned on Average Total Equity • This is how a business is increasing net income by using its total assets. • Net Income After Federal Taxes - Average Total Assets = Rate Earned on Average Total Assets

5. Rate Earned on Average Stockholder’s Equity • This calculation shows which is the best investment for their business. • Net Income After Federal Taxes / Average Stockholder’s Equity = Rate Earned on Average Stockholder’s Equity

6. Rate Earned on Net Sales • How much a business earns from net sales. This depends on the costs a business has also. • Net Income After Federal Taxes / Net Sales = Rate Earned on Net Sales

7. Earnings per Share • How much net income one share of common stock brings in during a fiscal period. • Net Income After Federal Taxes / Shares of Capital Stock Outstanding = Earnings per Share

8. Price Earnings Ratio • This calculation tells investors what kind of return they will get from a certain company’s stock. • Market Price Per Share / Earnings per Share = Price Earnings Ratio

9. Efficiency Analysis • Accounts Receivable Turnover Ratio • Average Number of Days for Payment • Merchandise Inventory Turnover Ratio

10. Accounts Receivable Turnover Ratio • Shows how many times the average amount of accounts receivable is collected annually. • Net Sales on Account / Average Book Value of Accounts Receivable = Accounts Receivable Turnover Ratio

11. Average Number of Days for Payment • How many days that customers are given to pay their accounts. • Days in Year / Accounts Receivable Turnover Ratio = Average Number of Days for Payment

12. Merchandise Inventory Turnover Ratio • How many times a year merchandise inventory is sold. • Cost of Merchandise Sold / Average Merchandise Inventory = Merchandise Inventory Turnover Ratio

13. Financial Strength Analysis • Working Capital • Current Ratio • Acid-Test Ratio • Debt Ratio • Equity Ratio • Equity per Share

14. Working Capital • The amount of assets that a business has when all of their liabilities have been paid off. • Total Current Assets - Total Current Liabilities = Working Capital

15. Current Ratio • Shows assets in relation to the liabilities of a business. • Total Current Assets / Total Current Liabilities = Current Ratio

16. Acid-Test Ratio • Determines how well a business could pay off all of its liabilities immediately if it needed to. • Total Quick Assets / Total Current Liabilities = Acid-Test Ratio

17. Debt Ratio • Shows how much of a business’ assets are financed by borrowed capital. • Total Liabilities / Total Assets = Debt Ratio

18. Equity Ratio • The percentage of assets that a stockholder’s equity will provide. • Total Stockholder’s Equity / Total Assets = Equity Ratio

19. Equity per Share • How much of the total stockholder’s equity is in a single share of stock. • Total Stockholder’s Equity / Shares of Capital Stock Outstanding = Equity per Share

20. In Conclusion... • Some of these calculations may seem frustrating. (Click on video) • However, with a little time and practice, it won’t be so confusing.