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Equations for Exam 1
Liquidity Ratios
ROE =
current ratio =
quick ratio =
ROA =
current assets
curent liabilities
net income
total assets
net income
equity
BEP = EBIT/Total Assets
current assetsβˆ’inventory
current liabilities
ROCE = EBIT(1-T)/Total Assets
Asset Management Ratios
Market Value Ratios
accounts receivable
ACP = DS0 = average daily sales
accounts receivable
x 360
sales
ITO = inventory turnover =
=
P/E π‘Ÿπ‘Žπ‘‘π‘–π‘œ =
cost of goods sold
inventory
π‘ π‘‘π‘œπ‘π‘˜ π‘π‘Ÿπ‘–π‘π‘’
𝐸𝑃𝑆
π‘šπ‘Žπ‘Ÿπ‘˜π‘’π‘‘ π‘‘π‘œ π‘π‘œπ‘œπ‘˜ π‘£π‘Žπ‘™π‘’π‘’ π‘Ÿπ‘Žπ‘‘π‘–π‘œ =
π‘ π‘‘π‘œπ‘π‘˜ π‘π‘Ÿπ‘–π‘π‘’
π‘π‘œπ‘œπ‘˜ π‘£π‘Žπ‘™π‘’π‘’ π‘π‘’π‘Ÿ π‘ β„Žπ‘Žπ‘Ÿπ‘’
Book value = common equity/# of shares
EPS = Net Income/ # of shares
ICP = Inventory/(COGS/360) = 360/ITO
FAT = fixed asset turnover =
total asset turnover =
sales
fixed assets
sales
total asset
= TAT
Debt Management Ratios
DuPont Equations
ROA = ROS*TAT
ROE = ROS*TAT*EM
Other
Sales x profit margin = net income
debt ratio = TL/TA
Net income x retention rate = retained earnings
EM = TA/Equity = [1/(1- (TL/TA))]
Cost ratio = COGS/sales
TIE =
EBIT
interest
Cash Conversion Cycle
cash coverage =
EBIT + depreciation
interest
𝑓𝑖π‘₯𝑒𝑑 π‘β„Žπ‘Žπ‘Ÿπ‘”π‘’ π‘π‘œπ‘£π‘’π‘Ÿπ‘Žπ‘”π‘’ =
𝐸𝐡𝐼𝑇 + π‘™π‘’π‘Žπ‘ π‘’ π‘π‘Žπ‘¦π‘šπ‘’π‘›π‘‘π‘ 
π‘–π‘›π‘‘π‘’π‘Ÿπ‘’π‘ π‘‘ + π‘™π‘’π‘Žπ‘ π‘’ π‘π‘Žπ‘¦π‘šπ‘’π‘›π‘‘π‘ 
Profitability Ratios
ROS = PM =
net income
sales
CCC = ICP + DSO – AP deferral
AP deferral = Accounts Payable/(COGS/360) =
(Accounts Payable/COGS) x 360
Operating cycle = ICP + DSO
From Chapter 5:
k = kPR + INFL + DR + LR + MR
INFLn = (I1+I2+….+In)/n
Two simplified or β€œtextbook” income statement formats used this semester.
sales
-COGS
Gross margin
-Expenses
EBIT
- Int.
EBT
- Tax
NI
-DIV
RE
sales
-VC
Gross margin
-FC
EBIT
- Int.
EBT
- Tax
NI
-DIV
RE
EBIT is operating income. Int. is interest expense not the interest rate.
Taxes are income taxes and DIV is dividends. RE is the contribution to
retained earnings this accounting period. β€œExpenses” subtracted before EBIT
often include at least two categories, depreciation and other expenses.
Sometimes the β€œother expenses” are called SG&A (sales, general and
administrative) expenses.
Simplified Balance Sheet as used this semester (with example numbers)
Assets
Cash
Accounts receivable
Inventory
Current Assets
1000
3000
2000
6000
Fixed assets:
Gross PP&E
Accumulated dep.
Net Fixed Assets
$4000
(1000)
$3000
Total Assets
9000
Liabilities and Owner’s Equity
Accounts payable
1000
Accruals
500
Notes payable
1000
Current Liabilities
2500
notes
Current Assets= gross working
capital
Net Working Capital = CA-CL
Long term debt
Total Liabilities
5000
7500
Stockholder Equity
1500
PP&E is property plant and
equipment. Usually there are
other fixed assets too. There can
be long term liabilities in addition
to long term debt. Equity is
usually divided into at least Stock
and accumulated Retained
Earnings. Stock is sometimes
divided into Par Value and Paid in
Excess.
Total Liab. & Equity
9000
Sometimes equity is called net worth. Paid in Excess is also sometimes called surplus.
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