##### Ratios 2
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#### Complete list of Terms and Definitions for Ratios 2

Terms Definitions
Current Ratio =CA/CL
inventory turnover cgs/inventory
Cash Ratio (Cash+equivalents)/CL
inventory turnover COGS/ Inventory
Gross Profit margin GP/sales
Debtors Turnover Ratio Net Sales/Debtors
operating profit margin operating profit/sales
Return on equity net Income/sales
Return on Operating Assets NOPAT/Operating Assets
price/earnings ratio stock price/earnings per share
Operating Ratio Operating Cost/Net Sales * 100
Return on Assets Net Income/ Total Assets
ROA (RETURN ON ASSETS) NI / Total Assets
Debt Service Coverage Ratio EAT+Non Cash Exp+Interest/ Int on long term liabilities + installment for principal
profit margin (return on sales) net profits after taxes/sales
Debt Ratio Analyses Solvency
Financial Leverage Assets / Equity
Gross margin Analyzes Profitability
Working Capital = CA - CL
Quality of Income Ratio Operating Flow --------------------------- Net Income indicates what portion of cash was generated from income higher the better
Current Ratio Analyzes Liquidity and Efficency
days inventory held inventory/cost of goods sold/365
Dividend Yeild =Annual Cash Dividends Per Share/Market Price Per Share
Working Capital turnover Sales/ Average total assets&#13;&#10; &#13;&#10;How effective use of its assets. Higher ratio indicates effective asset use to generate sales
DEBT TO TOTAL ASSETS RATIO TOTAL LIABILITIES/TOTAL ASSETS
Profit Margin Formula Net Income / Net Sales
Acid test ratio What Does Acid-Test Ratio Mean?A stringent test that indicates whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets. Calculated by:Investopedia explains Acid-Test RatioCompanies with ratios of less than 1 cannot pay their current liabilities and should be looked at with extreme caution. Furthermore, if the acid-test ratio is much lower than the working capital ratio, it means current assets are highly dependent on inventory. Retail stores are examples of this type of business. The term comes from the way gold miners would test whether their findings were real gold nuggets. Unlike other metals, gold does not corrode in acid; if the nugget didn't dissolve when submerged in acid, it was said to have passed the acid test. If a company's financial statements pass the figurative acid test, this indicates its financial integrity.
Net operating margin percentage Net operating income/ net sales
Times Interest Earned Ratio Net Income+Income Tax Exp+Interest Exp --------------------------- Interest Expense amount of resources generated for each dollar of interest expense. high is better.
Net profit Margin What Does Profit Margin Mean?A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 20% profit margin, for example, means the company has a net income of \$0.20 for each dollar of sales. Also known as Net Profit Margin.Watch: Profit MarginInvestopedia explains Profit MarginLooking at the earnings of a company often doesn't tell the entire story. Increased earnings are good, but an increase does not mean that the profit margin of a company is improving. For instance, if a company has costs that have increased at a greater rate than sales, it leads to a lower profit margin. This is an indication that costs need to be under better control. Imagine a company has a net income of \$10 million from sales of \$100 million, giving it a profit margin of 10% (\$10 million/\$100 million). If in the next year net income rises to \$15 million on sales of \$200 million, the company's profit margin would fall to 7.5%. So while the company increased its net income, it has done so with diminishing profit margins.
Accounts Receivable turnover Formula Net Sales / Average accounts receivable
Operating cash flow per share operating cash flow/ common shares outstanding
Current Ratio (Working Capital Ratio) CA/ CL&#13;&#10;ex. 02 = 175/695 = 1.03&#13;&#10; 01 = 665/700= .95&#13;&#10;the ability to meet short term obligations, has improves