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Financial Ratios

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Financial Ratios

Clicker Quiz

- Market Price Per Share
- Earnings Per Share
- A. Inventory Turnover
- B. Accounts Receivable Turnover
- C. Price Earnings Ratio
- D. Debt to Equity

- Public’s confidence in the future growth of the company

- Total Liabilities
- Stockholder’s Equity
- A. Inventory Turnover
- B. Accounts Receivable Turnover
- C. Price Earnings Ratio
- D. Debt to Equity

- Proportions of debt to equity
- Stockholders like it more than 1 since they will have more control
- Creditors would like it less than 1 since the company is financed more by owners than creditors

- Cost of Goods Sold
- Average inventory
- A. Inventory Turnover
- B. Accounts Receivable Turnover
- C. Price Earnings Ratio
- D. Debt to Equity

- How many times inventory has been bought and sold during the year.
- 4.0 Times would mean it is sold once a quarter. 12 times is once a month

- Sales on Account
- Average Accounts Receivable
- A. Inventory Turnover
- B. Accounts Receivable Turnover
- C. Price Earnings Ratio
- D. Debt to Equity

- How many times a company converts its receivables into cash each year.
- 52 times would be once a week – 7 days

- Dividends Per Share
- Market Price Per Share
- A. Return on Assets
- B. Dividend Payout
- C. Return on Equity
- D. Dividend Yield

- Return (dividends) on current market price of the stock

- Dividends Per Share
- Earnings Per Share
- A. Return on Assets
- B. Dividend Payout
- C. Return on Equity
- D. Dividend Yield

- Portion of current earnings being paid out in dividends. Investors for dividends want this to be a large %. Investors seeking market price increase would like it to be small.

- Net Income
- Average Total Assets
- A. Return on Assets
- B. Dividend Payout
- C. Return on Equity
- D. Dividend Yield

- How well the managers are using the assets to produce income
- We are ignoring the difference in comparable companies loans to buy the assets

- Net Income
- Average Stockholder’s Equity
- A. Return on Assets
- B. Dividend Payout
- C. Return on Equity
- D. Dividend Yield

- Measures how well the company used the owner’s investments to earn income

- Current Assets – Current Liabilities
- A. Current Ratio
- B. Book Value
- C. Quick Ratio
- D. Working Capital

- Excess of current assets to current liabilities. Shouldn’t have too much because you are not making your money work for you or you might have borrowed too much and are paying too much interest.

- Cash, Marketable Securities, A/R, Short N/R
- Current Liabilities
- A. Current Ratio
- B. Book Value
- C. Quick Ratio
- D. Working Capital

- Should be more than 1. Measures a company’s ability to meet obligations without having to liquidate inventory.

- Current Assets
- Current Liabilities
- A. Current Ratio
- B. Book Value
- C. Quick Ratio
- D. Working Capital

- Measures company’s short term debt paying ability.
- 2 is a good number

- Common Stockholder’s Equity
- # of Common Shares Outstanding
- A. Current Ratio
- B. Book Value
- C. Quick Ratio
- D. Working Capital

- Amount to be distributed to holders of each share of common stock if all assets were sold at their balance sheet carrying amounts after all creditors were paid off.
- Does not equal market value.
- Market Value represents future whereas book value represents historical