Sections
Horizontal Analysis
Vertical Analysis
Common-sized Statements
Trend Percentages
Discontinued Operations and Extraordinary Items
Introduction to Ratios
Ratios: Earnings Per Share (EPS)
Ratios: Working Capital and the Current Ratio
Ratios: Quick (Acid Test) Ratio
Ratios: Gross Profit Rate
Ratios: Profit Margin
Ratios: Quality of Earnings Ratio
Ratios: Inventory Turnover
Ratios: Average Days in Inventory
Ratios: Accounts Receivable (AR) Turnover
Ratios: Average Collection Period (Days Sales Outstanding)
Ratios: Return on Assets (ROA)
Ratios: Total Asset Turnover
Ratios: Fixed Asset Turnover
Ratios: Profit Margin x Asset Turnover = Return On Assets
Ratios: Accounts Payable Turnover
Ratios: Days Payable Outstanding (DPO)
Ratios: Times Interest Earned (TIE)
Ratios: Debt to Asset Ratio
Ratios: Debt to Equity Ratio
Ratios: Payout Ratio
Ratios: Dividend Yield Ratio
Ratios: Return on Equity (ROE)
Ratios: DuPont Model for Return on Equity (ROE)
Ratios: Free Cash Flow
Ratios: Price-Earnings Ratio (PE Ratio)
Ratios: Book Value per Share of Common Stock
Ratios: Cash to Monthly Cash Expenses
Ratios: Cash Return on Assets
Ratios: Economic Return from Investing
Ratios: Capital Acquisition Ratio
Additional Practice
Ratios Cumulative Problems

Concept #1: Introduction to Ratios

Additional Problems
Tests of profitability usually include which one of the following in the measurement? A. owners' equity B. average total assets C. income D. cash flows from operating activities
The equation of Cash + Cash Equivalents/Current Liabilities is used to compute which ratio? A. quick (or acid test) ratio B. cash ratio C. current ratio D. quality of income
Consider the following information: Compute the cash ratio to the nearest hundredth. A. 0.46 to 1 B. 0.19 to 1 C. 2.08 to 1 D. 1.73 to 1
A technique for evaluating financial statements that expresses the relationship among selected items of financial statement data is a. common size analysis. b. horizontal analysis. c. ratio analysis. d. vertical analysis.
A liquidity ratio measures the a. income or operating success of an enterprise over a period of time. b. ability of the enterprise to survive over a long period of time. c. short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash. d. number of times interest is earned.
Why is ratio analysis useful? a. It’s not useful; nobody in the real world ever uses this stuff. b. It provides an easy, objective way of telling whether a company is, on balance, in a strong or weak position. c. It is a way of standardizing numbers and can facilitate comparisons between firms. d. Unlike “raw” accounting data, ratios cannot be distorted by inflation. e. It eliminates the need to consider “qualitative” factors when evaluating a firm’s financial condition.
Which of the following is correct? a. The year-end balance in the inventories account reliably and accurately represents the average level of inventories for the entire year. b. Ratios can be artificially manipulated with “window dressing” techniques. c. Ratio analysis is very useful because it allows us to accurately compare two firms in completely different industries. d. The firm should always strive to keep its current ratio as high as possible.
Consider the following financial data for McGregor Manufacturing: Compared to other firms in the same industry, McGregor. a. uses less debt financing. b. has a longer average collection period for accounts receivable. c. has a lower return on assets. d. has lower short-term liquidity ratios. e. keeps a relatively high percentage of its sales as profit.