Using Financial Accounting Information: The Alternative To Debits And Credits

SUMMARY OF SELECTED FINANCIAL RATIOS RATIO NAME FORMULA PAGE REFERENCE* Liquidity Analysis Working capital Current Assets ⫺ Current Liabilities Current ratio Current Assets ᎏᎏ Current Liabilities Acid-test ratio (quick ratio) Cash ⫹ Marketable Securities ⫹ Current Receivables ᎏᎏᎏᎏᎏᎏ Current Liabilities 715 Cash flow from operations to current liabilities ratio Accounts receivable turnover ratio Net Cash Provided by Operating Activities ᎏᎏᎏᎏᎏ Average Current Liabilities 716 Net Credit Sales ᎏᎏᎏᎏ Average Accounts Receivable 357, 717 Number of days’ sales in receivables Number of Days in the Period ᎏᎏᎏᎏ Accounts Receivable Turnover 718 Inventory turnover ratio Cost of Goods Sold ᎏᎏ Average Inventory Number of days’ sales in inventory Number of Days in the Period ᎏᎏᎏᎏ Inventory Turnover 718 Cash-to-cash operating cycle Number of Days’ Sales in Inventory ⫹ Number of Days’ Sales in Receivables 719 Debt-to-equity ratio Total Liabilities ᎏᎏᎏ Total Stockholders’ Equity 720 Times interest earned ratio Net Income ⫹ Interest Expense ⫹ Income Tax Expense ᎏᎏᎏᎏᎏᎏ Interest Expense 721 Debt service coverage ratio Cash Flow from Operations before Interest and Tax Payments ᎏᎏᎏᎏᎏᎏᎏ Interest and Principal Payments 721 Cash flow from operations to capital expenditures ratio Profitability Analysis Cash Flow from Operations⫺Total Dividends Paid ᎏᎏᎏᎏᎏᎏ Cash Paid for Acquisitions 722 Gross profit ratio Gross Profit ᎏᎏ Net Sales 243, 712 Profit margin ratio Net Income ᎏᎏ Net Sales 84, 713 Return on assets ratio Net Income ⫹ Interest Expense, Net of Tax ᎏᎏᎏᎏᎏ Average Total Assets 724 Return on sales ratio Net Income ⫹ Interest Expense, Net of Tax ᎏᎏᎏᎏᎏ Net Sales 724 Asset turnover ratio Net Sales ᎏᎏᎏ Average Total Assets Return on common stockholders’ equity ratio Earnings per share Net Income⫺Preferred Dividends ᎏᎏᎏᎏ Average Common Stockholders’ Equity 725 Net Income⫺Preferred Dividends ᎏᎏᎏᎏᎏᎏᎏ Weighted Average Number of Common Shares Outstanding 727 Price/earnings ratio Current Market Price ᎏᎏᎏ Earnings per Share 727 Dividend payout ratio Common Dividends per Share ᎏᎏᎏᎏ Earnings per Share 576, 728 Dividend yield ratio Common Dividends per Share ᎏᎏᎏᎏ Market Price per Share 729 Cash flow adequacy Cash Flow from Operating Activities ⫺ Capital Expenditures ᎏᎏᎏᎏᎏᎏᎏ Average Amount of Debt Maturing over Next Five Years 70, 714 71, 82, 715 264, 265, 718 Solvency Analysis *boldface ⴝ Ratio Decision Model 419, 725 661, 662–663 S E V E N T H E D I T I O N Usin