Chapter 3 - Financial Ratios
1. current ratio
= current asset / current liabilities
interpretion : more than 1 is good
2. quick ratio
= ( current assets - inventory ) / current liabilities
interpretion : more than 1 is good
3. average collection period ( ACP )
= account receivable / sales x 360
interpretation : number of day the company able to collect their debtors
4. inventory turnover
= sales / inventory ( closing stock )
interpretion : less or equal than 5 is not good
5. fixed asset turnover
= sale / fix asset
6. total asset turnover
= sale / total asset
7. debt ratio
= ( long term debt + current liabilities ) / total asset
interpretation : > 50% is risky investment
8. debt to equity ratio
= long term debt : equity
eg 1:4
interpretation : the company are able to pay their long term debt by sell-off equity in event of bankruptcy.
9. time interest earned ( TIE )
= EBIT / interest
10. cash coverage
= ( EBIT + depreciation ) / interest
11. return on sales ( ROS )
= net income / sales
12. return on assets ( ROA )
= net income / total assets
13. return on equity ( ROE )
= net income / equity
14. price earnings ratio
= stock price / EPS
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Chapter 5 -Time Value Money
( 2 marks x 5 questions = 10 marks )
PV = FV / ( 1+ r ) n
FV = PV x ( 1 + r ) n
