Chapter 3 study guide

Topical review

• Explain the uses and users of financial ratios
• Calculate and describe ratios by their objectives
• Interpret ratios and provide acceptable arguments for lackluster results
• Liquidity
• Current ratio
• Quick ratio
• Asset management
  
  • Inventory turnover
  • Days of sales outstanding (DSO), a.k.a. average collection period (ACP)
  • Fixed asset turnover
  • Total asset turnover
• Debt management - explain the benefits and risks of debt
  
  • Debt ratio, debt to equity, asset multiplier
  • TIE ratio
• Profitability
  
  • (Net) Profit margin
  • Basic earning power (BEP)
  • Return on assets (ROA)
  • Return on (common) equity (ROE)
• Market value ratios
  
  • Price/earnings
  • Price/cash flow
  • Market/book (Price/book)
• Systematically organize all ratios through Dupont analysis
• Create common size financial statements
• Perform percentage change analysis

Basic numerical problems from the textbook

#ST-2a (this one is a "puzzle".  You need part (1) to find part (2) and so on.  It just practices the definitions a bit and uses a little algebra)
2, 5, 13