Financial Statements Analysis Flashcard

Front

What does the percentage gross profit on sales indicate?

Back

The percentage of sales available to cover operating expenses

Front

What is the formula for calculating the current ratio?

Back

Current assets / Current liabilities

Front

What does a low acid-test ratio indicate?

Back

The business cannot pay its short-term debts without selling stock

Front

What is the ideal current ratio for a business?

Back

2:1

Front

What does the debt/equity ratio indicate?

Back

The ratio of borrowed capital to shareholders' equity

Front

What is the recommended return on total capital employed (ROTCE) compared to interest on loans?

Back

It should be higher than the interest rate

Front

What does a high stock turnover rate indicate?

Back

High sales and quick cash availability

Front

What is the formula for calculating the average debtors collection period?

Back

Average Debtors x 365 / Credit Sales

Front

What does the return on shareholders' equity (ROSHE) measure?

Back

The profit made on the money invested by shareholders

Front

What is the purpose of calculating the rate of stock turnover?

Back

To determine the number of times stock is replaced per year