# MGT220H5 Study Guide - Final Guide: Debt Service Coverage Ratio, Christopher Small, Net Income

by OC2183280

Department

ManagementCourse Code

MGT220H5Professor

Christopher SmallStudy Guide

FinalThis

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Financial Ratios – Exam Review

Financial Ratios – Exam Review

LIQUIDITY RATIOS

Ideal

Name

Formula

What it Measures

1.5 to

3%

Current

Ratio

Current Assets

Current Liabilities

Short-term debt-

paying ability

1.0 ↑

Quick/Acid

Test Ratios

Cash,Marketable Securities,and Receivables (net)

Current Liabilities

Immediate short-term

liquidity

1.5 ↑

Current

Cash Debt

Coverage

Ratio

Net Cash Provided by Operating Activities

Average Current Liabilities (net)

Company’s ability to

pay off its current

liabilities in specific

year from its

operations

ACTIVITY

Ideal

Name

Formula

What it Measures

Depends Receivables

Turnover

Net Sales

Average Trade Receivables

Liquidity of receivables

↑ Inventory

Turnover

Cost of Goods Sold

Average Inventory

Liquidity of inventory

Depends Asset

Turnover

Net Sales

Average Total Assets

How efficiently assets are

used to generate sales

PROFITABILITY

Ideal

Name

Formula

What it Measures

↑ Profit Margin

on Sales

Net Income

Net Sales

Net income generated by

each dollar of sales

5% ↑

Rate of Return

on Assets

Net Income

Average Total Assets

Overall profitability of assets

15% ↑

Rate of Return

on Common

Share Equity

Net Income −Preferred Dividends

Average Common Shareholders'Equity

Profitability of owners’

investment

↑ Earnings per

Share

Net Income −Preferred Dividends

Weighted Average Shares Outstanding

Net income earned on each

common share

Depends Price Earnings

Ratio

Market Price of Shares

Earnings per Share

Ratio of the market price per

share to earnings per share

Depends Payout Ratio

Cash Dividends

Net Income

Percentage of earnings

distributed as cash dividends

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