Chapter 4 Formulas

Chapter 4 Formulas - Chapter 4 Formulas: 5 TYPES OF RAT...

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Unformatted text preview: Chapter 4 Formulas: 5 TYPES OF RAT IOS: 1) L iquidity: a. Cu r rent Ratio : current assets/current liabili ties b. Quick (or Acid-Test) Ratio : (current assets – inventories)/current liabilities 2) Asset Management Ratios: a. I nventory Tu rnover Ratio : sales/inventory b. Days Sales Outstanding (DSO) or Average Collections Period (ACP) : accounts r eceivables/average sales per day or accounts receivables/(annual sales/365) c. F ixed Assets Tu r nover Ratio : Sales/Net fixed assets d. Total Assets Tu rnover Ratio : Sales/Total assets 3) Debt Management Ratios: a. Debt Ratio : Total debt (liability)/Total assets b. T imes-I n terest-Ea rned (T I E) Ratio : EBIT/Interest Expense(charges) 4) Profitability: a. Operating M a rgin : Operating income (EBIT)/Sales b. P rofit M a rgin : Net income/Sales c. Basic Ea rning Power (BEP) Ratio : EBIT/Total assets d. Retu rn on Total Assets (ROA) : Net income/Total assets e. Retu rn on Common Equity (ROE) : Net income/Common equity 5) Market Value Ratios: a. P r ice/Earning (P/E) Ratio : Current price of stock/Earnings per share (EPS) b. M a rket to Book Value : current price of stock/book value per share Additional Formulas from Book: • D/E = (D/A) / (1-D/A) • D/A = (D/E) / (1+D/E) • EBITDA Coverage = (EBITDA + Lease Payments) / (Interest + Principal Payments + Lease Payments) • Return on Investors’ Capital (ROIC) = (Net Income + In terest) / (Debt + Equity) • Book Value Per Share = Common Equity / Shares Outstanding • ROE = Profit Margin x Total Assets Turnover x Equity Mult iplier • EVA = EBIT(1- Corporate Tax Rate) – (Total Investors Capital) x (After-Tax Cost of Capital) • EVA = Net Income – (Equity Capital) x (Cost of Equity Capital) = ( Equity Capital)[Net Income / Equity Capital – Cost of Equity Capital] = (Equity Capital)(ROE – Cost of Equity Capital) ...
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Chapter 4 Formulas - Chapter 4 Formulas: 5 TYPES OF RAT...

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