Financial Ratios

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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 What is this ratio?**Public’s confidence in the future growth of the company**Price Earnings Ratio**Total Liabilities**• Stockholder’s Equity • A. Inventory Turnover • B. Accounts Receivable Turnover • C. Price Earnings Ratio • D. Debt to Equity What is this ratio?**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 Debt to Equity Ratio**Cost of Goods Sold**• Average inventory • A. Inventory Turnover • B. Accounts Receivable Turnover • C. Price Earnings Ratio • D. Debt to Equity What is this ratio?**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 Inventory Turnover**Sales on Account**• Average Accounts Receivable • A. Inventory Turnover • B. Accounts Receivable Turnover • C. Price Earnings Ratio • D. Debt to Equity What is this ratio?**How many times a company converts its receivables into cash**each year. • 52 times would be once a week – 7 days Accounts Receivable Turnover**Dividends Per Share**• Market Price Per Share • A. Return on Assets • B. Dividend Payout • C. Return on Equity • D. Dividend Yield What ratio is this?**Return (dividends) on current market price of the stock**Dividend Yield Ratio**Dividends Per Share**• Earnings Per Share • A. Return on Assets • B. Dividend Payout • C. Return on Equity • D. Dividend Yield What is the ratio?**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. Dividend Payout Ratio**Net Income**• Average Total Assets • A. Return on Assets • B. Dividend Payout • C. Return on Equity • D. Dividend Yield What is the ratio?**How well the managers are using the assets to produce income**• We are ignoring the difference in comparable companies loans to buy the assets Return on Assets**Net Income**• Average Stockholder’s Equity • A. Return on Assets • B. Dividend Payout • C. Return on Equity • D. Dividend Yield What is this ratio?**Measures how well the company used the owner’s investments**to earn income Return on Stockholder’s Equity**Current Assets – Current Liabilities**• A. Current Ratio • B. Book Value • C. Quick Ratio • D. Working Capital What is the ratio?**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. Working Capital**Cash, Marketable Securities, A/R, Short N/R**• Current Liabilities • A. Current Ratio • B. Book Value • C. Quick Ratio • D. Working Capital What is the ratio?**Should be more than 1. Measures a company’s ability to**meet obligations without having to liquidate inventory. Acid Test (Quick) Ratio**Current Assets**• Current Liabilities • A. Current Ratio • B. Book Value • C. Quick Ratio • D. Working Capital What is the ratio?**Measures company’s short term debt paying ability.**• 2 is a good number Current Ratio**Common Stockholder’s Equity**• # of Common Shares Outstanding • A. Current Ratio • B. Book Value • C. Quick Ratio • D. Working Capital What is the ratio?**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 Book Value Per Share