Assignment #4

For each the ratios given below indicate:

1. Its formula
2. Where the inputs come from:
a. Only the balance sheet reports the firms financial condition on a specific data
b. Only the income statement summarizes revenues, cost of goods, and expenses (including taxes), for
a specific period and highlights the total profit for loss the firm experienced during that period.
c. Both the balance sheet and the income statement
3. what they measure

debt to equity ratio

1. Its formula:

Debt owners equity ratio=

total liabilities
owners equity

2. Where the inputs come from:

c. Both the balance sheet and the income statement
3. Measures the degree to which a firm relies on borrowed funds in its operations.

inventory turnover
1. Its formula:

Inventory turnover=

costs of goods sold

Average inventory

2. Where the inputs come from:

b. Only the income statement
3. measures the speed with which inventory moves through the firm and gets converted into sales.

accounts receivable turnover

1. Its formula:

Accounts Receivable Turnover Ration=

Net Credit Sales

Average Accounts Recei vable

2. Where the inputs come from:

b. Only the income statement
3. They measures a business ability to efficiently collect its receivables, it only makes sense that a higher
ratio would be more favorable.

acid-test ratio
1. Its formula

Acid test ratio=

cash+ Accountsreceivable + Marketable securities

Current liablilities

2. Where the inputs come from:

a. Only the balance sheet
3. Measures the cash marketable securities (such as stocks and bonds), and receivables of a firm,
compared to its current liabilities.

return on sales
Its formula:

Return sales=

net income
net sales

2. Where the inputs come from:

b. Only the income statement
3. it measures whether the firm is doing as well as its competitors in generating income from sales.

return on equity
1. Its formula;

Return Equity=

net income after tax

Total owner s' equity

2. Where the inputs come from:

b. Only the income statement
3. It indirectly measures risk by telling us how much a firm earned for each dollar invested by its owners.

earnings per share

1. Its formula:

Basic Earnings per share=

net income after taxes

number of common stock shares outstanding

2. Where the inputs come from:

b. Only the income statement
3. It measures the among of profit earned for each share of outstanding common stock, but also
considered stocks options, warrants, preferred stock, and convertible dept securities the firm can convert
into common stock.

current ratio
1. Its formula:

current ratio=

Current asssets
Current liablities

2. Where the inputs come from:

a. Only the balance
3. It measures a companys ability to turn assets into cash to pay its short-term debts(liabilities that must
be repaid within one year).