Appendix 24A: Basic Financial Statement Analysis 1549
ILLUSTRATION 24A-1
Summary of Financial
Ratios
SUMMARY OF RATIOS PRESENTED IN EARLIER CHAPTERS
Ratio
Formula for Computation
Reference
Current assets
Chapter 13, p. 749
I. Liquidity
1. Current ratio
Current liabilities
Cash, short-term investments,
and net receivables
2. Quick or acid-test
ratio
Chapter 13, p. 750
Current liabilities
Net cash provided by
operating activities
3. Current cash debt
coverage ratio
Chapter 5, p. 234
Average current liabilities
II. Activity
Net sales
4. Receivables turnover
Chapter 7, p. 392
Average trade receivables (net)
Cost of goods sold
5. Inventory turnover
Chapter 9, p. 516
Average inventory
Net sales
Chapter 11, p. 627
is
ar stu
ed d
vi y re
aC s
o
ou urc
rs e
eH w
er as
o.
co
m
6. Asset turnover
Average total assets
III. Profitability
7. Profit margin
on sales
8. Rate of return
on assets
Net income
Chapter 11, p. 628
Net sales
Net income
Chapter 11, p. 628
Average total assets
9. Rate of return on
common stock
equity
Average common stockholders’ equity
10. Earnings per share
Net income minus preferred dividends
Net income minus preferred dividends
Chapter 15, p. 870
Chapter 16, p. 922
Weighted-average shares outstanding
11. Payout ratio
Cash dividends
Chapter 15, p. 871
Net income
IV. Coverage
12. Debt to total
assets ratio
13. Times interest
earned
Total debt
Income before income taxes
and interest expense
Chapter 14, p. 808
Interest expense
14. Cash debt coverage
ratio
Net cash provided by
operating activities
Chapter 5, p. 234
Average total liabilities
Common stockholders’ equity
Th
15. Book value
per share
Chapter 14, p. 808
Total assets
Chapter 15, p. 871
Outstanding shares
sh
You can find additional coverage of these ratios, accompanied by assignment material, at the book’s companion website, at www.wiley.com/college/kieso. This supplemental coverage takes the form of a comprehensive case adapted from the annual report
of a large international chemical company that we have disguised under the name of
Anetek Chemical Corporation.
Gateway to
the Profession
Financial Analysis
Primer
Limitations of Ratio Analysis
The reader of financial statements must understand the basic limitations associated with ratio analysis. As analytical tools, ratios are attractive because they are
simple and convenient. But too frequently, decision-makers base their decisions
This study source was downloaded by 100000781315468 from CourseHero.com on 10-18-2021 19:33:21 GMT -05:00
https://www.coursehero.com/file/7631819/Summary-of-Ratios-Formulas/
Powered by TCPDF (www.tcpdf.org)
11
LEARNING OBJECTIVE
Explain the limitations of ratio analysis.