Financial statement analysis, ratios, bonds, derivatives and technical accounting topics.
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- What does the current ratio measure?
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Ability to pay short-term obligations with current assets; calculated as current assets divided by current liabilities.- Define the quick ratio (acid-test ratio).
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Current assets minus inventory, divided by current liabilities; tests immediate liquidity.- What is the debt-to-equity ratio used for?
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Measures financial leverage by comparing total debt to total equity; indicates how much debt a company uses to finance assets.- How is return on equity (ROE) calculated?
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Net income divided by average shareholders' equity; measures profitability of shareholder investment.- What does return on assets (ROA) measure?
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Net income divided by average total assets; measures how efficiently a company uses its assets to generate profits.- What is net profit margin?
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Net income divided by net sales; shows what percentage of revenue becomes profit after all expenses.- Define asset turnover ratio.
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Net sales divided by average total assets; measures how efficiently a company uses assets to generate sales.- What is earnings per share (EPS)?
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Net income minus preferred dividends, divided by weighted-average common shares outstanding; basic profitability metric per share.- How is the price-to-earnings (P/E) ratio calculated?
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Market price per share divided by earnings per share; market's willingness to pay for each dollar of earnings.- What is book value per share?
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Shareholders' equity minus preferred equity, divided by common shares outstanding; net asset value per common share.- Define the dividend payout ratio.
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Cash dividends paid divided by net income; percentage of earnings returned to shareholders as dividends.- What does the interest coverage ratio indicate?
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Earnings before interest and taxes (EBIT) divided by interest expense; ability to cover interest payments from operating income.- What is days sales outstanding (DSO)?
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365 divided by accounts receivable turnover; average number of days to collect payment after a sale.- How is inventory turnover calculated?
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Cost of goods sold divided by average inventory; measures how many times inventory is sold and replaced in a period.- What is the debt-to-assets ratio?
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Total debt divided by total assets; percentage of assets financed by creditors versus owners.
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