CH 12
Is the Business going Concern?
1. Net Working Capital = (Current Asset-Current Liability)
2. Current Ratio = (Current Asset/Current Liability)
3. Quick Ratio = (Quick Asset – Current Liability), quick asset = (Current asset-inventory)
How is the business earning net income/loss?
4. Gross Profit Percentage = (Gross Profit/Net Sales)
5. Net Income Percentage = (Net income/Net Sales)
Where is the business getting its money, and can it pay it debt obligations?
6. Debt Ratio = (Total Liability/Total Asset)
7. Interest Coverage Ratio = ( EBIT/Int Exp)
How is the business investing its money, and is it using its assets efficiently?
8. Accounts Receivable Turnover Ratio = (Net Cred Sales/Avg Acc Rec)
9. Inventory Turnover Ratio = (COGS/AVG Inventory)
10. Return on Assets = ( Net Income/Average Total Assets)
Is the business generating enough net income to reward its stockholders for the use of their $?
11. Earnings per Share = (Net Income/Average number of Common Shares Outstanding)
12. Dividends per Share = (Dividend payable/Net Income)
13. Dividend Payout Ratio = (Dividends Payable/ Average Shares Outstanding)
14. Return on Equity = (Net income/Average Equity)
15. PE Ratio = (Market Price per Share/EPS)
Vertical Analysis = (Financial Stockholders statement item $/Base amount $) x 100
Horizontal Analysis = (Dollar Change/Base period amount) x 100
- Decrease in liability = decrease cash. Increase liability = Increase cash.
Direct Method – Lists cash receipts and payments resulting from company’s day-2-day operation
*Depreciation expenses ignored.
*Cash Collection from Customers – (Sales Revenue + Decrease Acc/Rec) or (Sales Revenue-Increase Acc/Rec)
*Cash Payment to suppliers – (Inv Purch +or- Acc/Pay) + (Other Expenses +or- Accrued liability)
Free Cash Flow = Amount of cash available from operations after paying for investments in Long-Term Assets
(Net cash flow from operations – cash payments for investments in Long-Term Assets)
Cash Conversion Cycle = Amount of time a company’s cash is tied up in it operations
(Days-Sales-in-Inventory) + (Receivable Collection Period) – (Accounts Payable Payment Period)
Acc Payable Payment Period = Average accounts Payble / (COGS/365)
Ch 6
Internal Controls- Safeguard Assets. Operate efficiently and effectively. Ensure proper reporting of financial info.
Elements of Internal Controls
1) Control Environment – overall attitude awareness and actions of management.
2) Risk Assessment – Process of identifying risks and taking steps to mitigate them.
3) Control Activities – Policies and procedures implemented in internal control system.
4) Information and Communication – Communication throughout levels of organization.
5) Monitoring – Continually monitored to locate weaknesses.
11-27-2023 08:24:35 GMT -06:00
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Limitations of Internal Controls:
*- Tired employees. *Poorly design controls. *Staff size limitations *Collusion *management override *Cost of
implementing exceed benefits
