The working capital ratio is net working capital

Info icon This preview shows pages 17–19. Sign up to view the full content.

View Full Document Right Arrow Icon
The working capital ratio is net working capital divided by sales where net working capital is current assets minus current liabilities. The cash ratio is cash and cash equivalents divided by total assets. 97. Asset activity ratios are designed to measure how effectively a firm manages its assets. Name and describe at least three of these ratios. The receivables turnover ratio is annual credit sales divided by accounts receivable. Days' sales outstanding (or average collection period) is 365 divided by receivables turnover. Inventory turnover is cost of goods sold divided by inventory. Days' sales in inventory is 365 divided by inventory turnover. Fixed asset turnover is sales divided by fixed assets. Total asset turnover is sales divided by total assets. 98. Leverage ratios measure the amount of financial leverage. Name and describe at least two of these ratios. Debt ratio is total debt to total assets. Debt/equity ratio is total debt divided by stockholders' equity. Equity multiplier is total assets divided by stockholders' equity. Interest coverage ratio is EBIT divided by interest expenses. Fixed-charge coverage ratio is EBIT plus rental payments divided by interest expense plus rental payments 99. Coverage ratios show the number of items a firm can "cover" or meet a particular financial obligation. Name and describe at least two of these ratios. Interest coverage ratio is EBIT divided by interest expenses. Fixed-charge coverage ratio is EBIT plus rental payments divided by interest expense plus rental payments.
Image of page 17

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Cash flow coverage ratio is EBIT plus rental payments plus depreciation divided by interest expense plus rental payments. 100. Profitability ratios measure how effectively the firm is able to generate profits. Describe at least two of these ratios. Gross profit margin is the quantity sales minus cost of goods sold divided by sales. Net profit margin is net income before extraordinary items divided by sales. Return on assets is net income divided by total assets. Earning power is EBIT divided by total assets. Return on equity is earnings available for common stock before extraordinary items divided by common stockholders' equity. 101. Market value ratios relate the market value of the firm's common stock to earnings per share, dividends per share, and book value per share. Describe at least two of these ratios. The price/earnings ratio (P/E) is the market price per share of common stock divided by the earnings per share (EPS). The earnings yield is earnings per share divided by market price per share. The dividend yield is dividend per share divided by the market price per share. Market-to-book ratio is the market price per share divided by the book value per share. 102. Answer the below questions. (1) Which of the following is a source of cash? (a) the purchase of new fixed assets (b) dividends paid (c) a decrease in long-term debt (d) a decrease in inventory (2) Which of the following assets is generally considered the least liquid? (a) plant and equipment (b) inventory (c) goodwill (d) cash (3) Which of the following is a component of accounts payable? (a) current assets (b) long-term
Image of page 18
Image of page 19
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern