Chapter 2

Chapter 2

Return on assets (investment) = Profit margin Asset turnover Return on equity = Return on assets (investment) (1 Debt/Assets)

Chapter 3

x
Current Ratio =

=
Total Liabilities Total Assets Equity Equity Ratio = Total Assets Total Liabilities Debt - to - Equity = Total Equity Interest Expense Times Interest Earned = EBIT Debt Ratio =

Current Assets Current Liabilities Cash + Marketable Securities + AR Acid - test Ratio = Current Liabilities Net Sales Accounts Receivable Turnover = Accounts Receivable Cost of Goods Sold Inventory Turnover = Inventory Net Sales Total Asset Turnover = Total Assets 360 Net Sales Average Collection Period = = x 360 AR Turnover AR 360 Net Sales Day's Sales in Inventory = = x 360 Inventory Turnover Inventory

Net Income Sales Gross Profit Gross Margin Ratio = Sales Net Income Return on Total Assets = Sales Net Income Return on Equity = Stockholders' Equity Net Income Earnings Per Share = Number of Shares Outstanding Common Stocks Profit Margin Ratio =

Market Price Per Share Earnings Per Share Dividend Per Share Dividend Yield = Market Price Per Share Total Dividends Dividend Payout = Income Price Earnings Ratio =

Quick Ratio = Cash + marketable securities + A/R current liabilities

Chapter 3
Chapter 3 Extra Formulas Cash = (Total CA Inv) AR AR = (Sales / 360 days) x Avg. collection period ratio Inventory = (Sales) x (Total CA / Total Assets) / Inventory turnover ratio Fixed Assets = Sales / Fixed asset turnover ratio Total Assets = Sales / Sales to total asset ratio Total Debt = Total assets x Total Debt to Total asset ratio Current debt = Total CA / Current ratio Total Debt = Current debt + LT Debt LT Debt = Total Debt Current Debt Equity = Total Assets Total debt

Chapter 4

Units + Projected sales + Desired ending inventory Beginning inventory = Production requirements

Chapter 4

(RNF) = A (S) L (S) PS2(1 D) S S Where: A/S = Percentage relationship of variable assets to sales; S = Change in sales; L/S = Percentage relationship of variable liabilities to sales; P = Profit margin; S2 = New sales level; D = Dividend payout ratio

QP or Sales = Quantity x Price TVC or QVC = Quantity x VC per unit

BE = Fixed costs = Fixed costs = Contribution Margin Price VC per unit FC P - VC

DOL = Percent change in operating income Percent change in unit volume DOL = Q (P VC) Q (P VC) FC Operating Income (60,000) (36,000) (12,000) 0 12,000 36,000 60,000 Operating Income (12,000) (4,000) 0 4,000 12,000 20,000 28,000 Q = quantity at which DOL is computed P = price per unit VC = variable cost per unit FC = fixed costs

Volume-cost-profit analysis: leveraged firm Units sold Total VC Fixed Costs Total Costs 0 20,000 40,000 50,000 60,000 80,000 100,000 0 16,000 32,000 40,000 48,000 64,000 80,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 76,000 92,000 100,000 108,000 124,000 140,000

Total Revenue 0 40,000 80,000 100,000 120,000 160,000 200,000 Total Revenue 0 40,000 60,000 80,000 120,000 160,000 200,000

Volume-cost-profit analysis: conservative firm Units sold Total VC Fixed Costs Total Costs 0 20,000 30,000 40,000 60,000 80,000 100,000 0 32,000 48,000 64,000 96,000 128,000 160,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 44,000 60,000 76,000 108,000 140,000 172,000

DOL = Q(P VC)____ Q(P VC) FC DOL is degree of operating leverage Q is quantity at which DOL is computed P is price per unit VC is variable cost per unit FC is fixed cost DOL = __S - TVC__ S TVC FC DOL is degree of operating leverage S is sales (QP) at which DOL is computed TVC is total variable cost FC is fixed cost DCL = ____S - TVC____ S TVC FC - I DCL is degree of combined leverage S is sales (QP) at which DCL is computed TVC is total variable cost FC is fixed cost I is interest

DFL = __EBIT___ EBIT I DFL is degree of financial leverage EBIT is earnings before interest and taxes I is interest DCL = ___Q(P VC)____ Q(P VC) FC I

DCL is degree of combined leverage Q is quantity at which DCL is computed P is price per unit VC is variable cost per unit FC is fixed cost I is interest