Chapter 14 Formula Sheet Liquidity Ratios Acid-test ratio…
Chapter 14 Formula Sheet Liquidity Ratios Acid-test ratio = (Current assets – Inventory – Prepaid expenses) ÷ Current liabilities Current ratio = Current assets ÷ Current liabilities Debt Management Ratios Debt-to-equity ratio = Total liabilities ÷ Stockholders’ equity Equity multiplier = Average total assets ÷ Average stockholders’ equity Times interest earned ratio = Earnings before interest expense and income taxes ÷ Interest expense Asset Management Ratios Inventory turnover = Cost of goods sold ÷ Average inventory balance Average sale period = 365 days ÷ Inventory turnover ratio Accounts receivable turnover = Sales on account ÷ Average accounts receivable balance Average collection period = 365 days ÷ Accounts receivable turnover ratio Accounts payable turnover = Purchases on account ÷ Average accounts payable balance Average payment period = 365 days ÷ Accounts payable turnover ratio Operating cycle = Average sale period + Average collection period Cash conversion cycle = Average sale period + Average collection period – Average payment period Total asset turnover = Sales ÷ Average total assets Profitability Ratios Gross margin percentage = Gross margin ÷ Sales Net profit margin percentage = Net income ÷ Sales Return on equity = Net income ÷ Average stockholders’ equity Return on total assets = (Net income + ) ÷ Average total assets