earnings performance, efficiency analysis, and calculating financial strength
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Earnings Performance, Efficiency Analysis, and Calculating Financial Strength. Calculations and Definitions. Earnings Performance Analysis. Calculation: (January 1 total Assets + December 31 Total Assets) / 2 = Average Total Assets. - PowerPoint PPT PresentationTRANSCRIPT
Earnings Performance, Efficiency Analysis, and Calculating Financial
Strength
Calculations and Definitions
Earnings Performance Analysis
Rate earned on average total assets
Calculation: (January 1 total
Assets + December 31 Total Assets) / 2 = Average Total Assets
Calculation: NetIncome after Federal Income tax / Average total assets = Rate Earned on total Average Assets
Rate earned on average total assets
Definition: This total shows how well a business is
using it’s assets to earn net income.
Rate earned on average stockholders equity
Calculation: (January 1
Stockholder’s Equity + Dec 31 Stockholder’s Equity) / 2 =Average Stockholder’s Equity
Calculation: Net Income After
Federal Income Tax / Average Stockholder’s Equity = Rate Earned on Average Stockholder’s Equity
Rate earned on average stockholders equity
Definition: Investor’s use this for several
businesses to determine the best investment.
Rate earned on net sales
Calculation: Net Income After
Federal Income Tax / Net Sales = Rate Earned on Net Sales
Definition: It is used when a
business that carefully controls costs should earn a consistent rate on net sales form year to year.
Earnings per share
Calculation: Net Income After
Federal Income Tax / Shares of Capital Stock Outstanding = Earnings Per Share
Definition: Stockholder’s and
management often use this as a measure of success.
Price-earnings ratio
Calculation: Market Price Per
Share / Earnings Per Share = Price Earnings Per Ratio
Definition: This relates the
profitability to the amount that investor’s currently pay for the stock.
Efficiency Analysis
Accounts Receivable Turnover Ratio
Calculation: (Beginning Book
Value of Accounts Receivable + Ending Book Value) / 2 = Average Book Value of Accounts Receivable
Calculation: Net Sales on
Account / Average Book Value = Accts Receivable Turnover Ratio
Accounts Receivable Turnover Ratio
Definition: this ratio monitors a business’ accounts
receivable collection efficiency.
Average Number of Days for Payment
Calculation: Days In Year / Accounts Receivable Turnover Ratio = Average Number of Days For Payment
Definition: The average
number of days for the customers to pay their accounts.
Merchandise Inventory Turnover Ratio
Calculation: (January 1 Mdse
Inventory + Dec 31 Mdse Inventory) / 2 = Avg Merchandise Inventory
Calculation: Cost of
Merchandise Sold / Avg Mdse Inventory = Merchandise Inventory Turnover Ratio
Merchandise Inventory Turnover Ratio
Definition: This ratio can be used to monitor
merchandise inventory efficiency.
Financial Strength
Working Capital
Calculation: Total Current Assets
– Total Current Liabilities = Working Capital.
Use for both Current year and prior year.
Definition: this is the amount (stated in dollars) is
the amt of current assets available to the business after the current liabilities are paid.
Current Ratio
Calculation: Total Current Assets
/ Total Current Liabilities = Current Ratio
Definition: a ration that shows
the numeric relationship of current assets to current liabilities.
Acid-Test Ratio
Calculation: Total Quick
Assets(Cash +Accounts Receivable) / Total current Liabilities = Acid-Test Ratio
Definition: those current assets
that are cash or can quickly be turned into cash.
Debt Ratio
Calculation: Total Liabilities /
Total Assets = Debt Ratio
Definition: this ratio shows the
percentage of assets that are financed with borrowed capital(liabilities).
Equity Ratio
Calculation: Total Stockholder’s
Equity / Total Assets = Equity Ratio
Definition: This ratio shows the
percentage of assets that are provided by Stockholder’s equity.
Equity Per Share
Calculation: Total Stockholder’s
Equity / Shares of Capital Stock Outstanding = Equity per share
Definition: this tells
stockholder’s how much ownership of the company each share represents.
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