Earnings Performance, Efficiency Analysis, and Calculating Financial Strength

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Earnings Performance, Efficiency Analysis, and
Calculating Financial Strength 

• Calculations and Definitions

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Earnings Performance Analysis
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Rate earned on average total assets

• Calculation
• (January 1 total Assets December 31 Total
  Assets) / 2 Average Total Assets

• Calculation NetIncome after Federal Income tax /
  Average total assets Rate Earned on total
  Average Assets

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Rate earned on average total assets

• Definition
• This total shows how well a business is using
  its assets to earn net income.

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Rate earned on average stockholders equity

• Calculation
• (January 1 Stockholders Equity Dec 31
  Stockholders Equity) / 2 Average Stockholders
  Equity

• Calculation
• Net Income After Federal Income Tax / Average
  Stockholders Equity Rate Earned on Average
  Stockholders Equity

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Rate earned on average stockholders equity

• Definition
• Investors use this for several businesses to
  determine the best investment.

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Rate earned on net sales

• Calculation
• Net Income After Federal Income Tax / Net Sales
  Rate Earned on Net Sales

• Definition
• It is used when a business that carefully
  controls costs should earn a consistent rate on
  net sales form year to year.

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Earnings per share

• Calculation
• Net Income After Federal Income Tax / Shares
  of Capital Stock Outstanding Earnings Per Share

• Definition
• Stockholders and management often use this
  as a measure of success.

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Price-earnings ratio

• Calculation
• Market Price Per Share / Earnings Per Share
  Price Earnings Per Ratio

• Definition
• This relates the profitability to the amount
  that investors currently pay for the stock.

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Efficiency Analysis
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Accounts Receivable Turnover Ratio

• Calculation
• (Beginning Book Value of Accounts Receivable
  Ending Book Value) / 2 Average Book Value of
  Accounts Receivable

• Calculation
• Net Sales on Account / Average Book Value
  Accts Receivable Turnover Ratio

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Accounts Receivable Turnover Ratio

• Definition
• this ratio monitors a business accounts
  receivable collection efficiency.

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Average Number of Days for Payment

• Calculation Days In Year / Accounts
  Receivable Turnover Ratio Average Number of
  Days For Payment

• Definition
• The average number of days for the customers
  to pay their accounts.

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Merchandise Inventory Turnover Ratio

• Calculation
• (January 1 Mdse Inventory Dec 31 Mdse
  Inventory) / 2 Avg Merchandise Inventory

• Calculation
• Cost of Merchandise Sold / Avg Mdse Inventory
  Merchandise Inventory Turnover Ratio

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Merchandise Inventory Turnover Ratio

• Definition
• This ratio can be used to monitor merchandise
  inventory efficiency.

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Financial Strength
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Working Capital

• Calculation
• Total Current Assets Total Current
  Liabilities Working Capital.
• Use for both Current year and prior year.

• Definition
• this is the amount
• (stated in dollars) is the amt of current
  assets available to the business after the
  current liabilities are paid.

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Current Ratio

• Calculation
• Total Current Assets / Total Current
  Liabilities Current Ratio

• Definition
• a ration that shows the numeric relationship
  of current assets to current liabilities.

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Acid-Test Ratio

• Calculation
• Total Quick Assets(Cash Accounts Receivable)
  / Total current Liabilities Acid-Test Ratio

• Definition
• those current assets that are cash or can
  quickly be turned into cash.

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Debt Ratio

• Calculation
• Total Liabilities / Total Assets Debt Ratio

• Definition
• this ratio shows the percentage of assets that
  are financed with borrowed capital(liabilities).

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Equity Ratio

• Calculation
• Total Stockholders Equity / Total Assets
  Equity Ratio

• Definition
• This ratio shows the percentage of assets that
  are provided by Stockholders equity.

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Equity Per Share

• Calculation
• Total Stockholders Equity / Shares of Capital
  Stock Outstanding Equity per share

• Definition
• this tells stockholders how much ownership of
  the company each share represents.

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THE END