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    Times Interest Earned Ratio: Compare Interest Payments With Income Available To Pay Them

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    frank_grimes
    This document defines and explains several common financial ratios used to analyze companies, including: times interest earned ratio, gross profit ratio, return on assets, net income and profit margin, asset turnover, return on equity, price-earnings ratio. It also provides examples of multiple choice practice questions related to receivables turnover ratio, debt to equity ratio, average collection period, and profit margin.

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    Times Interest Earned Ratio: Compare Interest Payments With Income Available To Pay Them

    Uploaded by

    frank_grimes
    253 views13 pages
    This document defines and explains several common financial ratios used to analyze companies, including: times interest earned ratio, gross profit ratio, return on assets, net income and profit margin, asset turnover, return on equity, price-earnings ratio. It also provides examples of multiple choice practice questions related to receivables turnover ratio, debt to equity ratio, average collection period, and profit margin.

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    Module 10 Slides

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    Module 10 Slides

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    This document defines and explains several common financial ratios used to analyze companies, including: times interest earned ratio, gross profit ratio, return on assets, net income and profit margin, asset turnover, return on equity, price-earnings ratio. It also provides examples of multiple choice practice questions related to receivables turnover ratio, debt to equity ratio, average collection period, and profit margin.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    253 views13 pages

    Times Interest Earned Ratio: Compare Interest Payments With Income Available To Pay Them

    Uploaded by

    frank_grimes
    This document defines and explains several common financial ratios used to analyze companies, including: times interest earned ratio, gross profit ratio, return on assets, net income and profit margin, asset turnover, return on equity, price-earnings ratio. It also provides examples of multiple choice practice questions related to receivables turnover ratio, debt to equity ratio, average collection period, and profit margin.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 13

    Times Interest Earned Ratio

    Compare interest payments with income


    available to pay them
    Associated with long-term liabilities

    Gross Profit & Gross Profit Ratio


    Gross Profit
    NET Sales minus Cost of Goods Sold
    Amount of profit remaining to spend on operating
    expenses, etc. after our product is paid for
    Important first measure of profitability

    Gross Profit Ratio


    Indicates the portion of each dollar of sales
    above its cost of goods sold

    Return on Assets
    Measures the income the company earns on
    each dollar invested in assets

    Net Income & Profit Margin


    Net Income
    Gross margin (gross profit) less operating
    expenses, +/- nonoperating revenues or expenses
    and income tax expense
    The Bottom Line what is available to reinvest in
    our company or pay our shareholders

    Profit Margin
    Measures the income earned on each dollar of
    sales

    Asset Turnover
    Measures sales volume in relation to the
    investment in assets

    Return on Equity
    Measures the income earned for each dollar in
    stockholders equity
    So if I invest in this company, for every dollar I have
    invested the company was able to get a .22 cent
    return
    This is NOT what each owner will get in dividends!

    Price-Earnings Ratio
    Compares a companys share price with its
    earnings per share
    Indication of investors expectations of future
    earnings
    A low P/E ratio means the company may be
    undervalued by the market (a bargain!) OR it may
    mean the companys growth days are behind it
    A higher P/E ratio means the market is expecting
    the companys stock price to grow

    MC Practice
    Which of the following ratios is most useful in evaluating
    solvency?
    A. Receivables turnover ratio
    B. Inventory turnover ratio
    C. Debt to equity Ratio
    D. Current Ratio

    MC Practice
    Which of the following ratios is most useful in evaluating
    solvency?
    A. Receivables turnover ratio
    B. Inventory turnover ratio
    C. Debt to equity Ratio
    D. Current Ratio
    Although the current ratio is also a measure of shortterm solvency, debt to equity gives us a better picture of
    our long-term solvency by showing the analyst how
    much debt a company has taken on relative to the
    companys ownership interests

    MC Practice
    Which of the following is a positive sign that a
    company can quickly turn its receivables into
    cash?
    A. A low receivables turnover
    B. A high receivables turnover
    C. A low average collection period
    D. Both a high receivables turnover ratio and a low
    average collection period

    MC Practice
    Which of the following is a positive sign that a
    company can quickly turn its receivables into
    cash?
    A. A low receivables turnover
    B. A high receivables turnover
    C. A low average collection period
    D. Both a high receivables turnover ratio and a
    low average collection period

    MC Practice
    The Sports Shack reports Net Income of
    $120,000, sales of $1,200,000, average assets of
    $960,000, and current liabilities of $300,000. The
    profit margin is:
    A. 10%
    B. ($60,000)
    C. $120,000
    D. 80%

    MC Practice
    The Sports Shack reports Net Income of
    $120,000, sales of $1,200,000, average assets of
    $960,000, and current liabilities of $300,000. The
    profit margin is:
    A. 10% (Net Income / Net Sales)
    B. ($60,000)
    C. $120,000
    D. 80%

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