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Questions and Answers
[Blank] refer to the comparative magnitude of two statistical variables taken from a business's different financial statements.
[Blank] refer to the comparative magnitude of two statistical variables taken from a business's different financial statements.
Financial ratios and measurements
The primary purpose of conducting ______ is to monitor a business's performance and enable comparisons with competitors.
The primary purpose of conducting ______ is to monitor a business's performance and enable comparisons with competitors.
financial ratio analysis
The ______ is a financial ratio used to determine the time required to recoup an investment's cost from the net cash flows it generates.
The ______ is a financial ratio used to determine the time required to recoup an investment's cost from the net cash flows it generates.
income payback period
The formula for the income payback period is Total Investment divided by ______.
The formula for the income payback period is Total Investment divided by ______.
A shorter ______ is preferable because it indicates that an investor's initial financial risk is limited to a shorter duration.
A shorter ______ is preferable because it indicates that an investor's initial financial risk is limited to a shorter duration.
If Juan Dela Cruz, Inc. invests P500,000 in a new production line that generates a cash flow of P100,000 annually, the ______ is 5 years.
If Juan Dela Cruz, Inc. invests P500,000 in a new production line that generates a cash flow of P100,000 annually, the ______ is 5 years.
The ______ ratio allows entrepreneurs to determine the duration required to recover the initial investment.
The ______ ratio allows entrepreneurs to determine the duration required to recover the initial investment.
[Blank] is a financial ratio that gauges how efficiently a business generates profit from its revenue.
[Blank] is a financial ratio that gauges how efficiently a business generates profit from its revenue.
The formula for Return on Sales is Net Profit after Taxes divided by ______.
The formula for Return on Sales is Net Profit after Taxes divided by ______.
If Juan Dela Cruz, Inc. records P500,000 in total net sales and an operating profit of P120,000, the ______ is 0.24 or 24%.
If Juan Dela Cruz, Inc. records P500,000 in total net sales and an operating profit of P120,000, the ______ is 0.24 or 24%.
Accounting for potential biases, the reliability of financial ratios depends on the integrity of the underlying historical ______ and assumptions used in their calculation.
Accounting for potential biases, the reliability of financial ratios depends on the integrity of the underlying historical ______ and assumptions used in their calculation.
Return on sales, often referred to as the ______, measures the financial performance's effectiveness in generating earnings from its receipts.
Return on sales, often referred to as the ______, measures the financial performance's effectiveness in generating earnings from its receipts.
The ______ analysis helps in assessing a company's efficiency in using its resources to generate profits.
The ______ analysis helps in assessing a company's efficiency in using its resources to generate profits.
The formula to calculate Return on Assets is Net Profit after Taxes divided by ______.
The formula to calculate Return on Assets is Net Profit after Taxes divided by ______.
If Juan Dela Cruz, Inc. has a net income of P2,000,000 and total assets worth P10,000,000, its ______ is 0.2 or 20%.
If Juan Dela Cruz, Inc. has a net income of P2,000,000 and total assets worth P10,000,000, its ______ is 0.2 or 20%.
The ______ is a great measure if a business wants to determine how profitable it is relative to its total assets.
The ______ is a great measure if a business wants to determine how profitable it is relative to its total assets.
Using a financial ratio is imperative to determine the ______ condition of the business.
Using a financial ratio is imperative to determine the ______ condition of the business.
A deeper dive into financial data will reveal the entity's ______ position.
A deeper dive into financial data will reveal the entity's ______ position.
[Blank] is useful to compare in order to validate business success.
[Blank] is useful to compare in order to validate business success.
The total investment divided by the annual net income after taxes gives you the ______.
The total investment divided by the annual net income after taxes gives you the ______.
After taxes, net profit divided by sales gives you the ______.
After taxes, net profit divided by sales gives you the ______.
The net profit after taxes divided by the total assets gives you the ______.
The net profit after taxes divided by the total assets gives you the ______.
Understanding aspects such as sales volume, production costs, and operational efficiency allows for a comprehensive interpretation of the ______.
Understanding aspects such as sales volume, production costs, and operational efficiency allows for a comprehensive interpretation of the ______.
The ______ helps to see if a company’s sales strategy is effective by comparing its profit to its capital and assets.
The ______ helps to see if a company’s sales strategy is effective by comparing its profit to its capital and assets.
To assess the financial risks and rewards associated with different investments, an investor would primarily use the ______.
To assess the financial risks and rewards associated with different investments, an investor would primarily use the ______.
Comparative analysis is essential for assessing potential targets by assessing profitability, operational efficiency and ______ for each target.
Comparative analysis is essential for assessing potential targets by assessing profitability, operational efficiency and ______ for each target.
The income payback period is used when analyzing initial ______.
The income payback period is used when analyzing initial ______.
How efficiently a manufacturing firm converts materials into profit can be evaluated using the ______ from balance sheets and statements.
How efficiently a manufacturing firm converts materials into profit can be evaluated using the ______ from balance sheets and statements.
A shorter payback time indicates lower ______ in an investment.
A shorter payback time indicates lower ______ in an investment.
When performing ______, it is necessary to ensure consistency of use and assumptions.
When performing ______, it is necessary to ensure consistency of use and assumptions.
The return on assets measures the firm's capacity to generate profit by its total ______.
The return on assets measures the firm's capacity to generate profit by its total ______.
Financial ratios are powerful tool to assess ______ health by offering a quick and straightforward view.
Financial ratios are powerful tool to assess ______ health by offering a quick and straightforward view.
Operational efficiency and potential ______ are essential to understand for potential investors.
Operational efficiency and potential ______ are essential to understand for potential investors.
The stability and ______ of an organization will allow for better predictions of a profitable investment for investors.
The stability and ______ of an organization will allow for better predictions of a profitable investment for investors.
The return on sales equation takes the Net Profit After Taxes / ______.
The return on sales equation takes the Net Profit After Taxes / ______.
When deciding whether to scale a business, it is important to look at the ______ of the financial situation.
When deciding whether to scale a business, it is important to look at the ______ of the financial situation.
The ______ of a business will depend on the business’s performance.
The ______ of a business will depend on the business’s performance.
When comparing companies side-by-side, the ______ will ensure you are able to compare apples-to-apples and make similar conclusions given the same business strategy.
When comparing companies side-by-side, the ______ will ensure you are able to compare apples-to-apples and make similar conclusions given the same business strategy.
Evaluating a company's past ______ and current financial standing is imperative for making informed business decisions.
Evaluating a company's past ______ and current financial standing is imperative for making informed business decisions.
Financial ratios offers insight by contrasting various components of business' ______ declarations.
Financial ratios offers insight by contrasting various components of business' ______ declarations.
Flashcards
Financial Ratios
Financial Ratios
Comparative magnitude of two statistical variables from financial statements.
Purpose of Ratio Analysis
Purpose of Ratio Analysis
Keep track of performance and compare with competitors.
Income Payback Period
Income Payback Period
Time to recover investment from net cash flows.
Payback Period Equation
Payback Period Equation
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Return on Sales
Return on Sales
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Return on Sales Equation
Return on Sales Equation
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Return on Assets
Return on Assets
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Return on Assets Equation
Return on Assets Equation
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Ideal Payback Period
Ideal Payback Period
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Return on Sales Alias
Return on Sales Alias
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Study Notes
- Financial ratios and measurements refer to the comparative magnitude of two statistical variables, taken from a business's financial statements.
- Financial ratios help determine the internal strengths and weaknesses of a business.
- Financial ratios help keep track of business performance and make comparisons with competitors.
Income Payback Period
- A financial ratio used to identify the time needed to earn back the amount of investment in an asset from business net cash flows.
- Income Payback Period = Total Investment / Annual Net Income after Taxes (cash flow).
- Shorter payback period is better as it indicates an investor's initial outlay is only at risk for a shorter period of time.
- For example, if Juan Dela Cruz, Inc. invested P500,000 for a new production line that generates P100,000 annually, the payback period is 5 years (P500,000 / P100,000 per year).
- The income payback period ratio is used to determine how long it will take to return the initial investment to the entrepreneur.
Return on Sales
- A financial ratio and measurement to calculate the business's efficiency in generating profits from its revenue.
- Return on Sales = Net Profit after Taxes / Sales
- For example, if Juan Dela Cruz, Inc. earned P500,000 in total net sales and recorded an operating profit of P120,000, Return on Sales = P120,000 / P500,000, or 0.24 (24%).
- Return on Sales is also known as the operating profit margin.
Return on Assets (or Investments)
- A financial ratio used by a business to determine the percentage of profit it earns in relation to its total resources.
- Return on Assets = Net Profit after Taxes / Total Assets (or Investments).
- For example, if Juan Dela Cruz, Inc. posts a net income of P2,000,000 and owns P10,000,000 worth of assets, Return on Assets = P2,000,000 / P10,000,000 or 0.2 (20%).
- When determining how profitable a business is relative to its total assets, the return on assets ratio must be used.
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