Satyarani Safira

17312042

SUMMARY OF CHAPTER 5
FINANCIAL STATEMENT ANALYSIS

 Operating Ratios
analyze the profitability and cash flow of the business operations.

Revenue growth rate = Current year revenues – Prior year revenues

Prior year revenues

Gross margin percentage = Gross margin

Revenues

Operating margin percentage = Operating income

Revenues

Effective income tax rate = Income taxes

Earning before income taxes

Days receivables outstanding = Average account receivables balance

Revenues/365

Days payable outstanding = Average account payable balance

Cost of sales/365

Inventory turnover = Cost of sales

Average inventory balance

 Credit Ratios
measure a firm’s ability to repay obligations.
 Current ratio = Current assets
Current liabilities

Quick ratio = Cash and short-term investments

Current liabilities

Debt to capital ratio = Long-term debt

Debt + Minority interest + Equity

Interest coverage ratio = Earnings before interest and taxes

Interest expense

 Investment Ratios
measure a firm’s total performance and are used, along with the operating ratios, to screen
potential investments.

Price-to-earnings ratio = Stock price

Diluted earnings per share

Market-to-book ratio = Stock price

Book value per share

Return on capital = Net income + aftertax interest expense

Average total capital

Return on common equity = Net income

Average common equity