F2-M8

Question 1

To solve for quick ratio

Answer 1

Calculate the current assets (excluding inventory and prepaid expenses) / by the current liabilities

Question 2

The best ratio to indicate how effective a company is managing its inventory levels is

Answer 2

Inventory turnover

Question 3

To Solve for the EBITDA using the ‘bottom up’ approach is

Answer 3

Net income + income tax expense + interest expense + depreciation and amortization

Question 4

To solve for asset turnover ratio

Answer 4

Calculate net sales / the average total assets

Question 5

To solve for Return on Assets (ROA)

Answer 5

Calculate net income / Average total assets

Question 6

To solve for Return on Equity

Answer 6

Calculate Net income / average total shareholder equity

Question 7

To evaluate how a company is using shareholder investment to generate profit

Answer 7

You would use the return on equity ratio measure

Question 8

To solve for Price-To-Earnings ratio

Answer 8

Calculate the price per share (market price) / by basic earnings per share
If basic EPS not given = net income / WASO

Question 9

To solve for for debit-to-equity

Answer 9

Calculate total liabilities / total shareholders’ equity
This ratio helps analyze how much a financial leverage a company is using

Question 10

To solve for EBITDA using the ‘top down’ approach

Answer 10

Sales - cost of goods sold - operating expenses, excluding depreciation and amortization

Question 11

To solve for sales in account receivables

Answer 11

Calculate account receivable / (net sales / 365)

Question 12

To solve for Earnings per Share

Answer 12

Calculate net income available to common shareholders / weighted average common shares outstanding

Question 13

To solve for EBITDA

Answer 13

Take net income + income tax expenses + interest expense + depreciation and amortization

Question 14

EBITDA stands for

Answer 14

Earnings Before Taxes, Depreciation and Amortization

Question 15

To solve for interest earned ratio

Answer 15

Calculate net income before interest . Interest expenses

Question 16

To solve for total debit ratio

Answer 16

Calculate total liabilities / total assets to get the percentage of total assets are financed

Question 17

To solve for Assets turnover

Answer 17

Calculate net sales / average total assets

Question 18

To calculate for net sales

Answer 18

Account Receivable * AR Turnover

Question 19

Quick ratio measures

Answer 19

A company’s ability to pay short-term obligations using only its most liquid assets and excludes inventory

Question 20

To solve for the equity Multiplier

Answer 20

Calculate total assets / total equity

Question 21

To solve for dividend payout ratio

Answer 21

Calculate cash dividend / net income

Question 22

Time interest earned measures

Answer 22

A company’s ability to cover its interest charges and ability to meet it’s long-term deb obligations

Question 23

To solve for times interest earned,

Answer 23

Calculate net income + interest expense + income taxes / interest expense

Question 24

Gross profit margin reflects both pricing strategy and production efficiency by measuring

Answer 24

Profit after cost of goods sold

Question 25

Price-to-earnings ratio compares

Answer 25

A company’s stock prices to its earnings and reflects investors expectations of growth and investment potential

Question 26

Asset Turnover measures how effectively a company uses assets to generate

Answer 26

Sales, higher ratio indicates more effective asset utilization

Question 27

Return on Assets measures how effectively a company uses assets to generate

Answer 27

Profit

Question 28

To solve for inventory turnover

Answer 28

Calculate cost of goods sold / average inventory

Question 29

To solve for net profit

Answer 29

Calculate net income / net sales

Question 30

If the account receivable turnover ratio increased over two-year period

Answer 30

The company is more aggressively collecting customer accounts