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Section2 - ENGR111 Introduction to Finance and Marketing...

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ENGR111: Introduction to Finance and Marketing for Engineers Discussion Section 2 (01-22-2010)
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Financial Ratios (1) Short-term solvency or liquidity ratios Current Ratio = CA / CL Quick Ratio = (CA – Inventory) / CL Cash Ratio = Cash / CL Long-term solvency, or financial leverage, ratios Total Debt Ratio = (TA – TE) / TA Debt/Equity = TD / TE Equity Multiplier = TA / TE = 1 + D/E Times Interest Earned = EBIT / Interest Cash Coverage = (EBIT + Depreciation) / Interest
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Financial Ratios (2) Asset management or turnover ratios Inventory Turnover = Cost of Goods Sold / Inventory Days’ Sales in Inventory = 365 / Inventory Turnover Receivables Turnover = Sales / Accounts Receivable Days’ Sales in Receivables = 365 / Receivables Turnover Total Asset Turnover = Sales / Total Assets
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Financial Ratios (3) Profitability ratios Profit Margin = Net Income / Sales Return on Assets (ROA) = Net Income / Total Assets Return on Equity (ROE) = Net Income / Total Equity Both ROA and ROE measure profitability.
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