Bus2257 Financial Ratios & Desirable Trends Cheat Note

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Business Administration
Course Code
Business Administration 2257
Emily Saunders

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RETURN ON INVESTMENTSGoal of the FirmEarn Satisfactory ROIRatio DefinitionsCalculationsIndicators ofDesirable Trends NotesPROFITABILITY1COGSSales x 100 percentagemore desirableproof of management efficiency yields insight for 1Operating EfficiencyGross ProfitSales x 100 percentagemore desirablewhy Net Income is what it is 1Operating ExpensesSales x 100 percentagemore desirableVertical Analysistoo lowbankruptcy poor credit rating impairs 1EBITSales x 100future ability to obtain debtFinancing Coverage percentagemore desirable1Net IncomeSales x 100 percentagemore desirableexceeds debt interest ratefirm can benefit from 1Overall Financial PerformanceNet IncomeAve Total Assets x 100increased leverageReturn on Assets percentagemore desirablecompare to risk and return shareholders might make 1Net IncomeAve SE X 100on alternative investments gov BondsReturn on Equity percentagemore desirableINVESTMENT UTILIZATION2COGSAve InventoryInventory TurnoverInventory movement turnovermore desirabletoo highlost sales if not enough inventory32Fixed Asset TurnoverNet SalesAve Net Fixed AssetsEfficiency and Intensity Fixed Assets Used turnovermore desirable turnoverhigh cost of capital or foregoing better 32Total Asset TurnoverNet SalesAve Total AssetsFirms Overall Investments are Managed turnovermore desirableopportunities by having funds tied upNotes1 All ratios expressed as Percentages2 All ratios expressed in Times3 Asset Turnover figures dependent on amortization financing decisions lease vs buy purchase date of assetsFINANCIAL POSITIONQuality of the Balance SheetRatio DefinitionsCalculationsIndicators ofDesirable Trends NotesLIQUIDITY ShorttermCurrent RatioTotal Current AssetsTotal Current LiabilitiesAbility to meet ST Obligations with ST Assets21 Rule of ThumbIndustry Specifictoo lowpotentially insolvent vs too highnot Acid Test RatioCashMSARCurrent LiabilitiesImmediate Liquidity11 Rule of ThumbIndustry Specificeffective use of cashWorking CapitalCurrent AssetsCurrent Liabi
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