Prepare a comprehensive list of financial ratios as introduced in Chapter 3 of the textbook. Write a brief explanation below each financial ratio, e.g. what does the financial ratio measures or what the significance of it is.

For example:

Current Ratio = Current Assist / Current Liabilities

Current ratio measures whether our current assets, if liquidated, are sufficient to pay all of our current liabilities. A CR of 1.5, for example, shows that if we were to liquidate all of our current assets, we will be able to cover 1.5x our current liabilities, whereas a CR of 0.5 shows that liquidating our current assets only covers half of our current liabilities.

FINANCIAL RATIOS I WANT : A Write a brief explanation below each financial ratio, e.g. what does the financial ratio measures or what the significance of it is.

Short-term solvency, or liquidity, measures

• Current ratio = current assets/ current liabilities

• Quick ration = Current assets – inventory / current liabilities

Other liquidity Ratios

• Cash ratio = Cash/ Current Liabilities
• Net Working Capital to Total Assets = Net working Capital / Total Assets
• Interval Measure= Current assets / Average daily operating costs

Long term Solvency Measures

• Total assets – total equity / total assets
• Debit- equity ratio = total debt / total equity
• Equity multiplier = total assets / total equity

• Long term debt ratio = long term debt / long term + total equity

• Tomes interest earned ratio = EBIT / Interest
• Cash coverage ratio= EBIT + Depreciation / interest

Asser management, Or turnover, measures

• Inventory turnover = Cost of goods sold / inventory
• Receivables Turnover = sales / accounts receivable

• NWC turnover= sales / NWC
• Fixed asset turnover = sales/ net fixed assets
• Total asset turnover = sales/ total assets

Profitability measures

• Profit margin = Net income/ sales
• Return on Assets= Net income / total assets
• Return on equity = net income / total equity

Market Value Measures

• EPS = net income/ Shares outstanding
• PE= price per share / earning per share
• Market to book ratio= market value per share / book value per share
• Enterprise value= total market value of the stock + book value of liabilities – cash
• EBITA Ration= enterprise value/ EBITDA

Answer rating: 100% (QA)

Comprehensive List of Financial Ratios with Explanations I ShortTerm Solvency Liquidity Ratios Current Ratio Current Assets Current Liabilities Measures a companys ability to pay shortterm obligations ... View the full answer