Profitability ratios ratios that measure the overall financial performance – of a firm Return on sales ratio between net income after taxed and net sales – Return on investment (ROI) ratio between net income after taxes and – total equity; also known as return on equity owner’s Earnings per share measure of profitability calculated by dividing net – income after taxed by the average number of shares of common stock outstanding Liquidity ratios ratios that measure a ability to meet its short term – firm’s obligations when they are due Working capital current assets minus current liabilities – Current ration measure of a short term liquidity, calculated by – firm’s adding cash, marketable securities, and receivables, then dividing that sum by current liabilities Quick ratio measure of a short term liquidity, calculated by adding – firm’s cash, marketable securities, and receivables, the dividing that sum by current liabilities Activity ratio ratios that measure the effectiveness of the use of its – firm’s resources Inventory turnover ratios measure of the time a company takes to turn its – inventory into sales, calculated by dividing cost of goods sold by the average value of inventory for a period
Profitability ratios – ratios that measure the overall financial performance of a firm Return on sales – ratio between net income after taxed and net sales Return on investment (ROI) – ratio between net income after taxes and total owner’s equity; also known as return on equity Earnings per share – measure of profitability calculated by dividing net income after taxed by the average number of shares of common stock outstanding Liquidity ratios – ratios that measure a firm’s ability to meet its short term obligations when they are due Working capital – current assets minus current liabilities Current ration – measure of a firm’s short term liquidity, calculated by adding cash, marketable securities, and receivables, then dividing that sum by current liabilities Quick ratio – measure of a firm’s short term liquidity, calculated by adding cash, marketable securities, and receivables, the dividing that sum by current liabilities Activity ratio – ratios that measure the effectiveness of the firm’s use of its resources Inventory turnover ratios – measure of the time a company takes to turn its inventory into sales, calculated by dividing cost of goods sold by the average value of inventory for a period
Example.IntroBusinessOutline2008.docx