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Formulas

All Introductory Formulas

NameFormulaWhat does this tell us?
Retention Rate 1 - Payout Ratio The percentage of net income that is retained to grow the business, rather than being paid out.
Internal Growth Rate Retention Rate * ROBA The maximum growth rate a firm can achieve without resorting to external financing.
Sustainable Growth Rate Retention Rate * ROBE The annual percentage of increase in sales defined by Retention, Profitability, Efficiency, and Leverage
Profit Margin NI / Sales The amount of net income earned with each dollar of sales generated.
Asset Turnover Sales / Beginning Assets The total sales generated per dollar of assets.
Financial Leverage (aka. Equity Multiplier) Begin Assets / Beginning Equity An indication of how asset purchases were financed. A high ratio indicates the company has used more debt than equity to finance asset purchases.
Gross Margin Gross Profit / Sales The percent of total sales revenue retained after incurring the direct costs associated with producing the goods and services it sells
Operating Margin Operating Profit / Sales Indicates how much profit a company makes on a dollar of sales, after paying for variable costs of production (wages, raw materials), but before paying interest or tax.
Net Margin Net Income / Sales Indicates how much profit each dollar of sales generates.
Return On Beginning Assets (ROBA) Net Income / Beginning Assets Indicates how efficiently a company is utilizing its assets.
Return On Beginning Equity (ROBE) Net Income / Beginning Equity An indication of profitability per dollar of beginning equity.
Return On Beginning Equity (ROBE) (DuPont Model) Profit Margin * Asset Turnover * Financial Leverage A measure which integrates Profitability, Efficiency, and Leverage, indicating profitability per dollar of equity.
Return On Ending Equity (ROEE) Net Income / Ending Equity An indication of profitability per dollar of ending equity.
Return on Invested Capital (ROIC) EBIT * (1-Tax Rate) / Interest-bearing debt + Equity Reflects how well a company is using its money to generate returns. It is used to assess a company's efficiency at allocating the capital under its control to profitable investments.
Pretax Return on Invested Capital EBIT / Interest-bearing debt + Equity Indicates the profitability, before interest and taxes, generated per dollar of invested capital.
Asset Turnover Sales / Assets Reflects how well a company is using it's assets to generate revenue. The revenue generated per dollar of assets.
Fixed Asset Turnover Sales / Net PP&E Reflects the ability to generate sales from fixed-asset investments (property, plant and equipment) net of depreciation.
Inventory Turnover Sales / Inventory How many times a company has sold and replaced inventory during a given period.
Days In Inventory (Average Inventory / COGS) * 365 The average number of days required to turn inventory into sales.
Collection Period (Average Accounts Receivable / Credit Sales) * 365 The average number of days it takes to receive payments owed.
Cash Conversion Cycle Days In Inventory + Collection Period - Payables Period The average number of days it takes to convert inventory and receivables to cash, net the average number of days taken to pay suppliers.
Payables Period (Average Accounts Payable / Credit Purchases) * 365 The average number of days taken to pay suppliers.
Current Ratio Current Assets / Current Liabilities The ability to pay short-term liabilities with short-term assets.
Quick Ratio (Cash + Marketable Securities + Receivables) / Current Liabilities Also known as the "acid-test" ratio, a more conservative reflection of the ability to pay short-term liabilities with short-term assets (excluding assets, such as inventory, which are more challenging to liquidate).
Cash Ratio (Cash + ST Securities) / Current Liabilities A very conservative evaluation of the ability to pay its short-term liabilities with very liquid, short term assets.
Interval Measure (Cash + Securities + Receivables / Operations Costs) * 365 How many days a company can cover it's daily operations costs with short-term assets (excluding inventory).
Debt Ratio (Interest Bearing Debt + Leases) / (Int. Bearing Debt + Leases + Equity) The extent to which debt has been used to finance operations. The fraction of capital provided by debt, as opposed to equity.
Times-Interest Earned Ratio EBIT / Interest A measure of how many times a company can cover its interest charges on a pretax earnings basis.
EBITDA Margin EBITDA / Total Revenue A firm's operating profitability as a percentage of its total revenue. Reflects operating profitability and cash flow.
Times-burden Covered EBIT / Interest + (Principle Payments / 1 - Tax Rate) Reflects how many times over a company could pay its outstanding debt installments using its earnings.
Debt To Equity Total Liabilities / Total Shareholders' Equity Assessment of financial leverage. The extent to which a company is taking on debt as a means of leveraging its assets.
Equity To Asset Ratio Equity / Total Assets The percentage of assets acquired without debt.
Fixed to Variable Cost Fixed Costs / Variable Costs A measure of risk, indicating the balance of fixed and variable costs
Sales to Fixed Costs Sales / Fixed Costs The revenue generated per dollar of fixed costs.
Contribution Margin (Revenue - Variable Costs) / Sales The marginal revenue generated per dollar of sales.
Payout Ratio Dividends / Net Income The ratio of how much is paid out to investors per dollar of earnings.
Days' Sales in Receivables (Accounts Receivable / Sales) * 365 The number of days it takes a company to collect cash from its credit sales
Days' to liquidate inventory 365 / Inventory Turnover The number of days it takes to sell the inventory on hand.
Payout Ratio (per share) Dividends Per Share / Earnings Per Share A per-share calculation of the payout ratio. Indicates how much is paid out to investors per dollar of earnings.
Days' Sales in Cash (Cash + Securities) / (Sales / 365) On average, the number days of average sales a company keeps in highly-liquid assets.
Created by: jvanderwal