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Business Test 2

Equations

QuestionAnswer
Debt to Equity Ratio The extent to which a firm in financed through borrowing. Total Liabilities / Owners Equity = Debt to Equity Ratio
Long Term Debt to Equity Ratio The extent to which a firm is financed through borrowing. Long term debt to equity ratio = Long term liabilities (debt) / Owners Equity
Inventory Turnover Average number of times that inventory is sold and restocked during the year. Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory.
Gross Profit Margin The Amount of "Production Income" as a percentage of sales. Gross Profit Margin = Gross Profit / Total Revenue
Net Profit Margin The amount of income as a percentage of sales. Referred to as return on sales. Net Profit Margin = Net Income / Total Revenue
Return on Equity Income per dollar invested. Indicates possible growth rate. Return on Equity = Net income / Average owners equity
Earnings per Share The amount of income that each stockholder would receive if the income was equally distributed among the shares. EPS = Net Income / Avg Shares Outstanding
Market Capitalization The Value of all stock currently outstanding. What buyer would have to pay for shares. Market Capitalization = Numbers of Shares Outstanding x Share Price. Take adjusted stock price Dec. 31st prior year.
Dividend Yield The amount of dividend paid by a corporation in one year in relation to the value of it's stock. Dividend Yield = Dividend per share / Stock market Price. Take adjusted stock price Dec. 31st prior year.
Price to Earnings Ratio The amount investors are willing to pay for $1 of yearly earnings. "Popularity Index." P/E = Stock Market price / Earnings per share.
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