1. MGT 497 Financial, Trends, Ratios
Prof. Rick Hayes, Ph.D., CPA

2. Game Weighting Factors
Return on Assets (ROA)
Return on Equity (ROE)
Market Share (MS)
Stock Price (SP)
Unit Production Costs (UPC)
Total Net Income (TNI)

3. Average Net Income Yr 3 thru 6 Average Year End Assets Yrs 3 thru 6
Return on Assets (ROA)
Return on
Total Assets
Average Net Income Yr 3 thru 6
Average Year End Assets Yrs 3 thru 6 =
This ratio measures how well assets have been employed. 55 55

4. Return on Equity
Return on
Equity
Average Net Income Yrs 3 thru 6
Average Shareholders’ Equity Yrs 3 thru 6 =
This ratio measures the ability of management to generate net income from the resources the owners provide. 56 56

5. Market Share, Stock Price, Unit Production Cost
Total Company Dollar Sales Yrs 3 t 6
Total Industry Dollar Sales Yrs 3 thru 6 =
Stock Price = Average Year end stock Price Years 3 thru 6
Unit Production Cost (UPC) = Average Unit Production Cost Years 3 thru 6
Total Net Income (TNI) = Sum of Net Income for Years 3 thru 6 56 56

6. Ratios Liquidity: Current Ratio Leverage: Debt to Equity
Quick Ratio
Leverage: Debt to Equity
Times Interest Earned (Times Covered)
Debt to Assets
Profitability: Net/Gross profit margins
Return on Invested Capital (ROIC)
Return on Total Assets (ROA)
Return on Shareholder’s Equity (ROE)
Activity: Days Sales Outstanding (DSO)
Inventory Turnover
Shareholder : Total Shareholder Returns
Returns Price Earnings Ratio (P/E)
Dividend Yield
Illustration 7.3 35

7. Measures a company’s ability to satisfy its short-term liabilities
Liquidity Ratios =
Current ratio
Current assets
Current liabilities
Measures a company’s ability to satisfy its short-term liabilities =
Acid-test ratio
Quick assets
Current liabilities
Provides a more stringent indication of a company’s ability to pay its current liabilities

8. Leverage Ratios Total liabilities Debt to equity ratio=
Debt to equity ratio
Total liabilities
Shareholders’ equity
Indicates the extent of reliance on creditors, rather than owners, in providing resources =
Times interest earned ratio
Net income + Interest expense + Taxes
Interest expense
Indicates the margin of safety provided to creditors

9. Profit Ratios Profit Margin on Sales
Net Income
Net Sales =
This ratio indicates the portion of each dollar of revenue that is available to cover expenses. 54 54

10. This ratio measures how well assets have been employed.
Return on Total Assets
Return on
Total Assets
Net Income
Average Total Assets =
This ratio measures how well assets have been employed. 55 55

11. Return on Invested Capital
Profit Ratios
Net income
Total assets =
Return on assets
Net Profit
Invested Capital =
Return on Invested Capital

12. Average Shareholders’ Equity
Return on Equity
Return on
Equity
Net Income
Average Shareholders’ Equity =
This ratio measures the ability of management to generate net income from the resources the owners provide. 56 56

13. Receivables Turnover Ratio
Net Sales
Average Accounts Receivable
Receivables
Turnover
Ratio =
Whenever a ratio divides an income statement balance by a balance sheet balance, the average for the year is used in the denominator.
This ratio measures how many times a company converts its receivables into cash each year. 48 48

14. Days Sales Outstanding or Average Collection Period
365
Receivables Turnover Ratio
Average Collection Period =
This ratio is an approximation of the number of days the average accounts receivable balance is outstanding. 50 50

15. Inventory Turnover Ratio
Cost of Goods Sold
Average Inventory
Inventory
Turnover
Ratio =
This ratio measures the number
of times merchandise inventory
is sold and replaced during the year. 50 50

16. Average Days in Inventory
365
Inventory Turnover Ratio
Average Days in Inventory =
This ratio indicates the number
of days it normally takes to sell inventory. 50 50

17. Basic Earnings Per Share
*Current period’s cumulative preferred stock dividends (whether or not declared) and noncumulative preferred stock dividends (only if declared).
Simple Capital Structure
(Basic EPS)
Net income (after tax) – Preferred dividends*
Weighted average outstanding common stock
Number of shares outstanding × Number of months outstanding ÷ Weighted average shares outstanding

18. Shareholder Return Ratios
Market price per share
Earnings per share =
Price-Earnings Ratio
Dividend per share
Market price per share =
Dividend Yield