Please note The ability of a company to meet its current obligation is an important key to its financial success. The accounts receivable turnover is net sales divided average trade receivable outstanding during the year. (It measures activity). It measures the company ability to collect on its receivables. The quicker the turnover or collection, the more valid the current ratio and quick ratio is to the financial analysis. The average or norm was calculated based on the five companies in the industry group. Some important questions must be asked such as the following:

1) Is there a liquidity problem because of accounts receivable?

. Net sales .

Accounts Receivable Turnover= Average Trade Receivable

Asset turnover

Please note: Another way of measuring success is the ability of a company to turn its assets into quick cash. The asset turnover is net sales divided average total assets during the year. (It measures activity). It measures the company ability to use its assets to derive sales. The average or norm was calculated based on the five companies in the industry group. Some important questions must be asked such as the following:

1) What depreciation method (I.e. S/L, DDB, etc.) is used in the calculation?

2) Are there any old assets in the calculation?

The asset turnover is only one measure of evaluating activity. To answer these and other questions more analysis of other related data is needed.

. Net sales .

Asset Turnover= Average Total Assets

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Inventory turnover

Please note Another way of measuring success is the ability of a company to turn its assets into quick cash. The inventory turnover is cost of goods sold divided average inventory during the year. (It measures activity). It measures the company ability to sell its inventory. The average or norm was calculated based on the five companies in the industry group. Some important questions must be asked such as the following:

1) Does the average represent the activity of the year?

2) Does costing (FIFO, LIFO, Weighted average etc.) affect calculation?

3) Is there a slow or fast moving inventory in the calculation?

The inventory turnover is only one measure of evaluating liquidity. To answer these and other questions more analysis of other related data is needed.

. Cost of Goods sold .

Inventory Turnover= Average Inventory

Current ratio

Please note The ability of a company to meet its current obligation is an important key to its financial success. The current ratio is total current assets divided by total current liabilities (It measures liquidity). It is also known as the working capital ratio. It measures the company ability to meet short-term debt as they become due. The average or norm was calculated based on the five companies in the industry group. Some important questions must be asked such as the following:

1) Is there a liquidity problem because of a low current ratio?

2) Is inventory or accounts receivable liquidity low as well?

The current ratio is only one measure of evaluating liquidity. To answer these and other questions more analysis of other related data is needed.

Current ratio= Current Assets

Current Liabilities

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Quick ratio or Acid Test ratio

Please note The ability of a company to meet its current obligation is an important key to its financial success. The Quick ratio is cash, marketable securities and net receivables divided by total current liabilities (It measures liquidity). It is also known as the acid test ratio. It measures the company ability to meet short-term debt as they become due. The average or norm was calculated based on the five companies in the industry group. Some important questions must be asked such as the following:

1) Is there a liquidity problem because of a low quick ratio?

2) Is inventory or accounts receivable liquidity low as well?

The quick ratio is only one measure of evaluating liquidity. To answer these and other questions more analysis of other related data is needed.

Quick Ratio= Cash + Marketable Securities + Net Receivables

Current Liabilities

Debt to total assets

Please note The debt to total assets is debt divided by total assets. (It measures coverage). It gives creditors or bondholder an idea of the company ability to “cover” or endures losses with out affecting their investments. The lower the ratio is the more the bondholders have before a company goes into bankruptcy. The average or norm was calculated based on the five companies in the industry group. This ratio answer the following question:

1) How well protected are the creditors in the event of a bankruptcy?

2) Are related party loans involved in the calculation? Is not answered.

The accounts receivable turnover is only one way of measuring activity. To answer these and other questions more analysis of other related data is needed.

Debt to total assets= Total debt

Total assets

Earnings per share

Please note: How profitable a company operated during the year is measured by the earnings per share it is calculated by dividing net income by the weighted shares outstanding The basic shares were used without taking in account dilutive securities. The average or norm was calculated based on the five companies in the industry group. The following questions must be answered:

1) Was the there any purchase of treasury stock?

The earning per share ratio is only one way of measuring profitability. There are other factors to consider.

. Net Income less Preferred Dividends .

Earnings per share= Weighted shares outstanding

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P/E or price earnings ratio

Please note How profitable a company operated during the year is measured by the P/E or price earnings ratio. It is calculated by dividing market price by earnings per share. A drop in the P/E ratio a maybe sign investors are concerned about a company’s future growth. The average or norm was calculated based on the five companies in the industry group.

The P/E ratio is only one way of measuring profitability. More analysis of other related data is needed.

. Market Price of Stock .

Price Earning Ratio= Earnings Per Share

Profit margin on sales ratio

Please note: How profitable a company operated during the year is measured by the profit margin on sales ratio it is calculated by dividing net income by net sales. The average or norm was calculated based on the five companies in the industry group. The following questions must be answered:

1) Was the net income sufficient?

2) What was the asset turnover ratio? They are measured together.

The profit margin on sales is only one way of measuring activity. To answer these and other questions more analysis of other related data is needed.

. Net Income .

Profit Margin on Sales= Net Sales

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Rate of return on assets ratio

Please note: How profitable a company operated during the year is measured by the rate of return on assets ratio it is calculated by dividing net income by average total assets. The average or norm was calculated based on the five companies in the industry group. The following questions must be answered:

1) Was the net income sufficient?

2) What was the profit margin? They are measured together.

The profit margin on sales is only one way of measuring activity. To answer these and other questions more analysis of other related data is needed.

3) Is inventory liquidity low as well?

4) How long has the receivable been outstanding?

The accounts receivable turnover is only one way of measuring activity. To answer these and other questions more analysis of other related data is needed.

. Net Income .

Rate of return on asset= Average Total Assets

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Return on Equity

. Net Income after Taxes .

Return on Equity = Total Stockholders Equity

1) How effective a company used funds invested by stockholders during the year is measured by the return on equity ratio.

2) The higher this ratio is, the more successful the company has been in generating a return to the stockholders of the business.

Equity to Assets Ratio

. Total Stockholders Equity .

Equity to Assets = Total Assets

1) What portion of a company’s funds financed by stockholders is measured by equity to assets ratio.

2) If this ratio is too high, it may be a sign the company is not taking advantage of opportunities to use borrowed funds to leverage its returns to its stockholders.

Debt to Equity Ratio

. Long Term Debt .

Debt to Equity = Total Stockholders Equity

1) What portion of a company’s long-term funds financed creditors and its relationship to funds provided by its stockholders is measured by this ratio.

2) It measures of the company’s financial leverage.

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Return on Investment

. Net Income after Taxes .

Return on Investment = Total Assets

1) How effective a company used its available assets to produce net income for the company during the year is measured by the return on investment ratio.

2) The higher the ratio is, the more successful the firm has been in generating a return on the assets invested in the firm.

Operating Cash Flow to Total Debt

. Operating Cash Flow .

Operating Cash Flow to total Debt = Total Debt

1) A company’s ability to cover its total debt with current operating cash flow is measured by the operating cash flow to total debt ratio.

2) The higher the ratio is, the more successful the firm has been in carrying its total debt.

Cash Flow Margin

Operating Cash Flow .

Cash Flow Margin = Net Sales

1) A company’s ability to change sales into cash flow that can be used to pay dividends, debts or acquire assets is measured by the cash flow margin.

2) The higher the ratio is, the more successful the company has been in producing cash flow from every dollar of sales.

Cash Flow Return

Operating Cash Flow .

Cash Flow Return = Total Assets

1) A company’s ability to use all its assets to produce cash flow is measured by the cash flow return.

2) The higher the ratio is, the more successful the company has been in producing cash flow on its total investment in assets.

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