Making Money
A business needs these to make money.
What is assets?
Poor management of the firm's operations resulting in low sales and low profits can still have a very high return on equity because of this?
What is financial leverage (equity multiplier)?
This is the name for all the ratios relative to sales.
What is margin?
Working capital is calculated using this formula.
What is Current Assets - Current Liabilities?
A firm’s ability to meet its total financial obligations, not just short-term ones, is measured by this category of ratios.
What are solvency ratios?
A company has $1,000 in equity and no liabilities on its books. What is the value of its total assets?
What is $1,000
You look at this component of return on equity (ROE) to verify whether a company is actually good at running its operations.
What is asset turnover (efficiency)?
Low quality raw materials selling at low cost or good negotiating skills leading to low cost increases this ratio (or margin).
This metric measures the average number of days a company takes to collect payment from customers.
What is Days Sales Outstanding (DSO)?
This ratio shows whether the firm is able to make interest payments.
What is interest coverage ratio?
This causes customers to switch from Target (a more upscale brand) to Walmart (a cheaper brand)
What is a financial crisis?
A company selling very expensive goods and services is likely to increase this component of return on equity (ROE).
What is Net Income?
Tiffany has a high level of this because of expensive stores, expensive packaging, and high-end amenities in the stores.
What is Selling, General and Administrative Expenses? (SG&A)
A company that delays paying suppliers for a longer period increases this metric.
What is Days Payable Outstanding (DPO)?
When debt-to-equity ratio equals 1.
What is liabilities = equity?
What is the first step to financial statement analysis?
What is understanding the business? (How does the business make money?)
This important ratio is also embedded in the formula for return on equity
What is return on assets (ROA)?
This is margin measure what is left over after dividing up net sales into various margins.
What is net profit margin?
This ratio measures a company's ability to cover its short-term liabilities with its short-term assets.
What is the current ratio?
They can take ownership of the business if the company experiences financial distress.
What is lenders? (or creditors)
The two properties of information disclosed by companies.
What is relevance and reliability?
This ratio measures how efficiently a company turns sales into profits.
What is net profit margin?
The amount that show how much the company has left over to pay creditors and the government.
What is EBIT (Earnings before interest and tax expenses)?
This ratio excludes inventory from current assets when measuring liquidity.
What is the quick ratio?
We can learn this about ratio from demands by lenders?
What is the accepted values for certain ratios?