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# Earnings Performance, Efficiency Analysis, and Calculating Financial Strength - PowerPoint PPT Presentation

Earnings Performance, Efficiency Analysis, and Calculating Financial Strength. Calculations and Definitions. Earnings Performance Analysis. Calculation: (January 1 total Assets + December 31 Total Assets) / 2 = Average Total Assets.

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### Earnings Performance, Efficiency Analysis, and Calculating Financial Strength

Calculations and Definitions

### Earnings Performance Analysis Calculating Financial Strength

Calculation: Calculating Financial Strength

(January 1 total Assets + December 31 Total Assets) / 2 = Average Total Assets

Calculation: NetIncome after Federal Income tax / Average total assets = Rate Earned on total Average Assets

Rate earned on average total assets

Rate earned on average total assets Calculating Financial Strength

• Definition:

This total shows how well a business is using it’s assets to earn net income.

Calculation: Calculating Financial Strength

(January 1 Stockholder’s Equity + Dec 31 Stockholder’s Equity) / 2 =Average Stockholder’s Equity

Calculation:

Net Income After Federal Income Tax / Average Stockholder’s Equity = Rate Earned on Average Stockholder’s Equity

Rate earned on average stockholders equity

Rate earned on average stockholders equity Calculating Financial Strength

• Definition:

Investor’s use this for several businesses to determine the best investment.

Calculation: Calculating Financial Strength

Net Income After Federal Income Tax / Net Sales = Rate Earned on Net Sales

Definition:

It is used when a business that carefully controls costs should earn a consistent rate on net sales form year to year.

Rate earned on net sales

Calculation: Calculating Financial Strength

Net Income After Federal Income Tax / Shares of Capital Stock Outstanding = Earnings Per Share

Definition:

Stockholder’s and management often use this as a measure of success.

Earnings per share

Calculation: Calculating Financial Strength

Market Price Per Share / Earnings Per Share = Price Earnings Per Ratio

Definition:

This relates the profitability to the amount that investor’s currently pay for the stock.

Price-earnings ratio

### Efficiency Analysis Calculating Financial Strength

Calculation: Calculating Financial Strength

(Beginning Book Value of Accounts Receivable + Ending Book Value) / 2 = Average Book Value of Accounts Receivable

Calculation:

Net Sales on Account / Average Book Value = Accts Receivable Turnover Ratio

Accounts Receivable Turnover Ratio

Accounts Receivable Turnover Ratio Calculating Financial Strength

• Definition:

this ratio monitors a business’ accounts receivable collection efficiency.

Calculation: Days In Year / Accounts Receivable Turnover Ratio = Average Number of Days For Payment

Definition:

The average number of days for the customers to pay their accounts.

Average Number of Days for Payment

Calculation: Turnover Ratio = Average Number of Days For Payment

(January 1 Mdse Inventory + Dec 31 Mdse Inventory) / 2 = Avg Merchandise Inventory

Calculation:

Cost of Merchandise Sold / Avg Mdse Inventory = Merchandise Inventory Turnover Ratio

Merchandise Inventory Turnover Ratio

Merchandise Inventory Turnover Ratio Turnover Ratio = Average Number of Days For Payment

• Definition:

This ratio can be used to monitor merchandise inventory efficiency.

### Financial Strength Turnover Ratio = Average Number of Days For Payment

Calculation: Turnover Ratio = Average Number of Days For Payment

Total Current Assets – Total Current Liabilities = Working Capital.

Use for both Current year and prior year.

Definition:

this is the amount

(stated in dollars) is the amt of current assets available to the business after the current liabilities are paid.

Working Capital

Calculation: Turnover Ratio = Average Number of Days For Payment

Total Current Assets / Total Current Liabilities = Current Ratio

Definition:

a ration that shows the numeric relationship of current assets to current liabilities.

Current Ratio

Calculation: Turnover Ratio = Average Number of Days For Payment

Total Quick Assets(Cash +Accounts Receivable) / Total current Liabilities = Acid-Test Ratio

Definition:

those current assets that are cash or can quickly be turned into cash.

Acid-Test Ratio

Calculation: Turnover Ratio = Average Number of Days For Payment

Total Liabilities / Total Assets = Debt Ratio

Definition:

this ratio shows the percentage of assets that are financed with borrowed capital(liabilities).

Debt Ratio

Calculation: Turnover Ratio = Average Number of Days For Payment

Total Stockholder’s Equity / Total Assets = Equity Ratio

Definition:

This ratio shows the percentage of assets that are provided by Stockholder’s equity.

Equity Ratio

Calculation: Turnover Ratio = Average Number of Days For Payment

Total Stockholder’s Equity / Shares of Capital Stock Outstanding = Equity per share

Definition:

this tells stockholder’s how much ownership of the company each share represents.

Equity Per Share