{"id":1366,"date":"2015-06-08T22:05:19","date_gmt":"2015-06-08T22:05:19","guid":{"rendered":"https:\/\/courses.candelalearning.com\/finacct2x10xmaster\/?post_type=chapter&p=1366"},"modified":"2015-06-10T18:40:35","modified_gmt":"2015-06-10T18:40:35","slug":"ratio-summary","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-finaccounting\/chapter\/ratio-summary\/","title":{"raw":"Ratio Summary","rendered":"Ratio Summary"},"content":{"raw":" \r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Type<\/strong><\/td>\r\nRatio<\/strong><\/td>\r\nFormula<\/strong><\/td>\r\nSignificance<\/strong>\u00a0<\/strong><\/td>\r\n<\/tr>\r\n
Liquidity Ratios<\/strong><\/td>\r\n<\/tr>\r\n
\u00a0<\/strong>Working Capital<\/td>\r\nCurrent Assets \u2013 Current Liabilities<\/td>\r\nAmount of current assets left over after paying liabilities<\/td>\r\n<\/tr>\r\n
\u00a0<\/strong>Current ratio<\/td>\r\n\n\nCurrent Assets<\/span>\r\n\r\nCurrent Liabilities<\/td>\r\nTest of debt-paying ability \u2013 how much do we have available for every $1 of liabilities.<\/td>\r\n<\/tr>\r\n
\u00a0Acid-test (quick) Ratio<\/td>\r\n\n\nQuick Assets (Cash + Marketable Securities + net receivables)<\/span>\r\n\r\nCurrent Liabilities<\/td>\r\nTest of immediate debt-paying ability \u2013 how much cash do we have available immediately to pay debt<\/td>\r\n<\/tr>\r\n
\u00a0Cash flow liquidity ratio<\/td>\r\n\n\n(Cash + Marketable securities + Cash flow from operating activities)<\/span>\r\n\r\nCurrent Liabilities<\/td>\r\nTest of short-term, debt paying ability<\/td>\r\n<\/tr>\r\n
\u00a0Accounts Receivable Turnover<\/td>\r\n\n\nNet credit sales (or net sales)<\/span>\r\n\r\nAverage Accounts Receivable\r\n\r\n**Avg Accounts Receivable is calculated as (beg. or last year\u2019s accounts receivable + current year end Accounts receivable) \/ 2<\/td>\r\nTest of quality of accounts receivable \u2013 how many times have we collected avg accts receivable<\/td>\r\n<\/tr>\r\n
\u00a0Days Sales Uncollected<\/td>\r\n\n\nAccts Receivable, Net x 365 days<\/span>\r\n\r\nNet Sales\r\n\r\n**Accts Receivable, Net means Accounts Receivable \u2013 Allowance for doubtful or uncollectible accounts.<\/td>\r\nHow many days it takes to collect on accounts receivable<\/td>\r\n<\/tr>\r\n
\u00a0Inventory Turnover<\/td>\r\n\n\nCost of Goods Sold<\/span>\r\n\r\nAverage Inventory\r\n\r\n**Avg Inventory is calculated as (beg. or last year\u2019s inventory + current year end inventory) \/ 2<\/td>\r\nTest of management efficiency \u2013 how many times we have sold avg. inventory<\/td>\r\n<\/tr>\r\n
\u00a0Days Sales in Inventory<\/td>\r\n\n\nEnding Inventory x 365 days<\/span>\r\n\r\nCost of Goods Sold<\/td>\r\nHow many days it takes to sell inventory<\/td>\r\n<\/tr>\r\n
\u00a0Total Asset Turnover<\/td>\r\n\n\nNet Sales<\/span>\r\n\r\nAverage Total Assets\r\n\r\n**Avg Total Assets is calculated as (beg. or last year\u2019s total assets + current year end total assets) \/ 2<\/td>\r\nHow many times we have been able to sell the amount equal to avg total assets. Tests whether the volume of business is adequate.<\/td>\r\n<\/tr>\r\n
Equity (or Solvency) Ratios<\/strong><\/td>\r\n<\/tr>\r\n
\u00a0Debt Ratio<\/td>\r\n\n\nTotal Liabilities<\/span>\r\n\r\nTotal Assets<\/td>\r\nHow much we owe in liabilities for every $1 in assets.<\/td>\r\n<\/tr>\r\n
\u00a0Equity (or Stockholder\u2019s Equity) Ratio<\/td>\r\n\n\nTotal Equity<\/span>\r\n\r\nTotal Assets<\/td>\r\nHow much equity we have for every $1 in assets.<\/td>\r\n<\/tr>\r\n
\u00a0Debt to Equity Ratio<\/td>\r\n\n\nTotal Liabilities<\/span>\r\n\r\nTotal Equity<\/td>\r\nHow much we owe in liabilities for every $1 of equity.<\/td>\r\n<\/tr>\r\n
\u00a0Stockholder\u2019s Equity to Debt Ratio<\/td>\r\n\n\nTotal Equity<\/span>\r\n\r\nTotal Liabilities<\/td>\r\nHow much equity we have to cover $1 in liabilities.<\/td>\r\n<\/tr>\r\n
Profitability Ratios<\/strong><\/td>\r\n<\/tr>\r\n
\u00a0Profit Margin Ratio<\/td>\r\n\n\nNet Income<\/span>\r\n\r\nNet Sales<\/td>\r\n\n\nHow much NET income we generate from every dollar of sales.\r\n\r\n <\/td>\r\n<\/tr>\r\n
\u00a0Gross Margin Ratio<\/td>\r\n\n\nNet sales \u2013 Cost of goods sold<\/span>\r\n\r\nNet Sales<\/td>\r\nHow much gross profit is earned on every dollar of sales (also known as markup)<\/td>\r\n<\/tr>\r\n
\u00a0Return on total assets<\/td>\r\n\n\nNet Income<\/span>\r\n\r\nAverage Total Assets\r\n\r\n**Avg Total Assets is calculated as (beg. or last year\u2019s total assets + current year end total assets) \/ 2<\/td>\r\nHow many times we have earned back average total assets from net income.<\/td>\r\n<\/tr>\r\n
\u00a0Return on common stockholder\u2019s equity<\/td>\r\n\n\nNet Income \u2013 Preferred dividends<\/span>\r\n\r\nAverage common stockholder\u2019s equity<\/td>\r\nHow much net income was generated from every dollar of common stock invested.<\/td>\r\n<\/tr>\r\n
\u00a0Basic Earnings per Share (EPS)<\/td>\r\n\n\nNet Income \u2013 Preferred Dividends<\/span>\r\n\r\nWeighted Avg common shares outstanding<\/td>\r\nHow much net income generate on every share of common stock<\/td>\r\n<\/tr>\r\n
Market Prospects<\/strong><\/td>\r\n<\/tr>\r\n
\u00a0Price-earnings ratio<\/td>\r\n\n\nMarket price per common share<\/span>\r\n\r\nEarnings per share<\/td>\r\nHow much the market price is for every dollar of earnings per share<\/td>\r\n<\/tr>\r\n
\u00a0Dividend yield<\/td>\r\n\n\nAnnual cash dividends per share<\/span>\r\n\r\nMarket price per share<\/td>\r\nHow much dividends you receive based on every dollar of market price per share.<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nClick ratio summary<\/a>\u00a0for a printable copy.","rendered":"

 <\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Type<\/strong><\/td>\nRatio<\/strong><\/td>\nFormula<\/strong><\/td>\nSignificance<\/strong>\u00a0<\/strong><\/td>\n<\/tr>\n
Liquidity Ratios<\/strong><\/td>\n<\/tr>\n
\u00a0<\/strong>Working Capital<\/td>\nCurrent Assets \u2013 Current Liabilities<\/td>\nAmount of current assets left over after paying liabilities<\/td>\n<\/tr>\n
\u00a0<\/strong>Current ratio<\/td>\n\n

Current Assets<\/span><\/p>\n

Current Liabilities<\/td>\n

Test of debt-paying ability \u2013 how much do we have available for every $1 of liabilities.<\/td>\n<\/tr>\n
\u00a0Acid-test (quick) Ratio<\/td>\n\n

Quick Assets (Cash + Marketable Securities + net receivables)<\/span><\/p>\n

Current Liabilities<\/td>\n

Test of immediate debt-paying ability \u2013 how much cash do we have available immediately to pay debt<\/td>\n<\/tr>\n
\u00a0Cash flow liquidity ratio<\/td>\n\n

(Cash + Marketable securities + Cash flow from operating activities)<\/span><\/p>\n

Current Liabilities<\/td>\n

Test of short-term, debt paying ability<\/td>\n<\/tr>\n
\u00a0Accounts Receivable Turnover<\/td>\n\n

Net credit sales (or net sales)<\/span><\/p>\n

Average Accounts Receivable<\/p>\n

**Avg Accounts Receivable is calculated as (beg. or last year\u2019s accounts receivable + current year end Accounts receivable) \/ 2<\/td>\n

Test of quality of accounts receivable \u2013 how many times have we collected avg accts receivable<\/td>\n<\/tr>\n
\u00a0Days Sales Uncollected<\/td>\n\n

Accts Receivable, Net x 365 days<\/span><\/p>\n

Net Sales<\/p>\n

**Accts Receivable, Net means Accounts Receivable \u2013 Allowance for doubtful or uncollectible accounts.<\/td>\n

How many days it takes to collect on accounts receivable<\/td>\n<\/tr>\n
\u00a0Inventory Turnover<\/td>\n\n

Cost of Goods Sold<\/span><\/p>\n

Average Inventory<\/p>\n

**Avg Inventory is calculated as (beg. or last year\u2019s inventory + current year end inventory) \/ 2<\/td>\n

Test of management efficiency \u2013 how many times we have sold avg. inventory<\/td>\n<\/tr>\n
\u00a0Days Sales in Inventory<\/td>\n\n

Ending Inventory x 365 days<\/span><\/p>\n

Cost of Goods Sold<\/td>\n

How many days it takes to sell inventory<\/td>\n<\/tr>\n
\u00a0Total Asset Turnover<\/td>\n\n

Net Sales<\/span><\/p>\n

Average Total Assets<\/p>\n

**Avg Total Assets is calculated as (beg. or last year\u2019s total assets + current year end total assets) \/ 2<\/td>\n

How many times we have been able to sell the amount equal to avg total assets. Tests whether the volume of business is adequate.<\/td>\n<\/tr>\n
Equity (or Solvency) Ratios<\/strong><\/td>\n<\/tr>\n
\u00a0Debt Ratio<\/td>\n\n

Total Liabilities<\/span><\/p>\n

Total Assets<\/td>\n

How much we owe in liabilities for every $1 in assets.<\/td>\n<\/tr>\n
\u00a0Equity (or Stockholder\u2019s Equity) Ratio<\/td>\n\n

Total Equity<\/span><\/p>\n

Total Assets<\/td>\n

How much equity we have for every $1 in assets.<\/td>\n<\/tr>\n
\u00a0Debt to Equity Ratio<\/td>\n\n

Total Liabilities<\/span><\/p>\n

Total Equity<\/td>\n

How much we owe in liabilities for every $1 of equity.<\/td>\n<\/tr>\n
\u00a0Stockholder\u2019s Equity to Debt Ratio<\/td>\n\n

Total Equity<\/span><\/p>\n

Total Liabilities<\/td>\n

How much equity we have to cover $1 in liabilities.<\/td>\n<\/tr>\n
Profitability Ratios<\/strong><\/td>\n<\/tr>\n
\u00a0Profit Margin Ratio<\/td>\n\n

Net Income<\/span><\/p>\n

Net Sales<\/td>\n

\n

How much NET income we generate from every dollar of sales.<\/p>\n

 <\/td>\n<\/tr>\n

\u00a0Gross Margin Ratio<\/td>\n\n

Net sales \u2013 Cost of goods sold<\/span><\/p>\n

Net Sales<\/td>\n

How much gross profit is earned on every dollar of sales (also known as markup)<\/td>\n<\/tr>\n
\u00a0Return on total assets<\/td>\n\n

Net Income<\/span><\/p>\n

Average Total Assets<\/p>\n

**Avg Total Assets is calculated as (beg. or last year\u2019s total assets + current year end total assets) \/ 2<\/td>\n

How many times we have earned back average total assets from net income.<\/td>\n<\/tr>\n
\u00a0Return on common stockholder\u2019s equity<\/td>\n\n

Net Income \u2013 Preferred dividends<\/span><\/p>\n

Average common stockholder\u2019s equity<\/td>\n

How much net income was generated from every dollar of common stock invested.<\/td>\n<\/tr>\n
\u00a0Basic Earnings per Share (EPS)<\/td>\n\n

Net Income \u2013 Preferred Dividends<\/span><\/p>\n

Weighted Avg common shares outstanding<\/td>\n

How much net income generate on every share of common stock<\/td>\n<\/tr>\n
Market Prospects<\/strong><\/td>\n<\/tr>\n
\u00a0Price-earnings ratio<\/td>\n\n

Market price per common share<\/span><\/p>\n

Earnings per share<\/td>\n

How much the market price is for every dollar of earnings per share<\/td>\n<\/tr>\n
\u00a0Dividend yield<\/td>\n\n

Annual cash dividends per share<\/span><\/p>\n

Market price per share<\/td>\n

How much dividends you receive based on every dollar of market price per share.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Click ratio summary<\/a>\u00a0for a printable copy.<\/p>\n\n\t\t\t

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Candela Citations<\/h3>\n\t\t\t\t\t
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