CMA Part 2 Equations
Liquidity Ratios
Current ratio = Current Assets / Current Liabilities
Quick ratio (Acid Test Ratio) = (Cash + Cash equivalent + Marketable Securities + Net A/R) / CL
Cash ratio = (Cash + Cash equivalent + Marketable Securities) / CL
Cash flow ratio = Operating cash flow / Ending CL NWCR
Net working capital ratio = (CA – CL) / Total Assets
Activity Ratios
Accounts receivables turnover = Annual net credit sales / Average gross A/R (A/R + bad debts provision)
Days of sales in receivables = 365 / AR turnover (Average gross A/R / average daily net credit sales)
Measures of collectability = Provision for doubtful accounts / gross accounts receivables Inventory:
Inventory turnover = Annual COGS / Average inventory
Days of sales in inventory = 365 / inventory turnover
Accounts payable turnover = Annual credit purchases / average accounts payable
Days of purchases in payables = 365 / AP turnover
Operating cycle = Days of sales in inventory + days of sales in receivables
Cash cycle = Operating cycle – days of purchases in payables
Assets turnover = Net sales / Average total Assets
Fixed assets turnover = Net sales / Average net fixed assets
Working capital turnover = Sales / Net working capital
Leverage
Financial leverage (Equity Multiplier) = Total Assets / Total Equity
Financial leverage index = Return on common equity / Return on assets
Degree of Financial Leverage (DFL) = %Δ in net income / %Δ EBIT or EBIT / EBT
Degree of Operating Leverage (DOL) = %Δ Operating income (EBIT) / %Δ Sales or CM / EBIT
Degree of Total Leverage (DTL) = %Δ net income / %Δ Sales or CM / EBT
Capital Structure and Solvency
Debt to equity ratio = Total liabilities / Total equity
Long-term debt to equity ratio = Long-term liabilities (Total Debt – CL) / Total Equity
Debt to total assets ratio = Total liabilities / Total assets
Market Ratios
Book value per share = (Total equity – preferred equity) / # of common shares outstanding
Price to book value = Market price per share / Book value per share
Price to earnings (P/E) = Market price per share / BEPS (annual)
Price to EBITDA = Market price per share / EBITDA per share
Earnings yield = BEPS annual / Market price per share
Dividends yield = Dividend per share (annual) / Market price per share
Dividend pay-out = Annual common dividends / Income available for common stock
Basic EPS = IAC / WANCSO
Income Available for CS holders (IAC) = NI – noncumulative PDs (declared) – cumulative PDs (earned)
EPS effect of a convertible bonds = Interest on the bond (1 – t) / the # of shares the bonds are converted into
EPS effect of conv. preferred shares = Cumulative (noncumulative) PDs earned (declared) / # of P are converted into
Created by Fahid Silver
Liquidity Ratios
Current ratio = Current Assets / Current Liabilities
Quick ratio (Acid Test Ratio) = (Cash + Cash equivalent + Marketable Securities + Net A/R) / CL
Cash ratio = (Cash + Cash equivalent + Marketable Securities) / CL
Cash flow ratio = Operating cash flow / Ending CL NWCR
Net working capital ratio = (CA – CL) / Total Assets
Activity Ratios
Accounts receivables turnover = Annual net credit sales / Average gross A/R (A/R + bad debts provision)
Days of sales in receivables = 365 / AR turnover (Average gross A/R / average daily net credit sales)
Measures of collectability = Provision for doubtful accounts / gross accounts receivables Inventory:
Inventory turnover = Annual COGS / Average inventory
Days of sales in inventory = 365 / inventory turnover
Accounts payable turnover = Annual credit purchases / average accounts payable
Days of purchases in payables = 365 / AP turnover
Operating cycle = Days of sales in inventory + days of sales in receivables
Cash cycle = Operating cycle – days of purchases in payables
Assets turnover = Net sales / Average total Assets
Fixed assets turnover = Net sales / Average net fixed assets
Working capital turnover = Sales / Net working capital
Leverage
Financial leverage (Equity Multiplier) = Total Assets / Total Equity
Financial leverage index = Return on common equity / Return on assets
Degree of Financial Leverage (DFL) = %Δ in net income / %Δ EBIT or EBIT / EBT
Degree of Operating Leverage (DOL) = %Δ Operating income (EBIT) / %Δ Sales or CM / EBIT
Degree of Total Leverage (DTL) = %Δ net income / %Δ Sales or CM / EBT
Capital Structure and Solvency
Debt to equity ratio = Total liabilities / Total equity
Long-term debt to equity ratio = Long-term liabilities (Total Debt – CL) / Total Equity
Debt to total assets ratio = Total liabilities / Total assets
Market Ratios
Book value per share = (Total equity – preferred equity) / # of common shares outstanding
Price to book value = Market price per share / Book value per share
Price to earnings (P/E) = Market price per share / BEPS (annual)
Price to EBITDA = Market price per share / EBITDA per share
Earnings yield = BEPS annual / Market price per share
Dividends yield = Dividend per share (annual) / Market price per share
Dividend pay-out = Annual common dividends / Income available for common stock
Basic EPS = IAC / WANCSO
Income Available for CS holders (IAC) = NI – noncumulative PDs (declared) – cumulative PDs (earned)
EPS effect of a convertible bonds = Interest on the bond (1 – t) / the # of shares the bonds are converted into
EPS effect of conv. preferred shares = Cumulative (noncumulative) PDs earned (declared) / # of P are converted into
Created by Fahid Silver
