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1

## Return on total assets

Net income + [Interest expense X (1-Tax Rate)]
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Average total assets

2

## Return on common stockholders' equity

Net income - Preferred dividends
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Average common stockholders' equity

3

## Average common stockholders' equity

Average total stockholders' equity - Average preferred stock

4

## Financial leverage is positive when...

the rate of return on total assets is greater than the rate of return on common stockholders' equity

5

## book value per share=

Total stockholders' equity' Preferred stock
--------------------------------------------------
Number of common shares outstanding

6

## Financial leverage is negative when...

the rate of return on total assets is less than the rate of return on common stockholders' equity

7

## Working capital =

Current assets - Current Liabilities

8

## Current ratio =

Current assets
---------------------------------------------------
Current liabilities

9

## Acid-test ratio =

cash + Marketable securities + A/R +Short term notes receivable
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Current liabilites

10

## Acid- test ratio looks at current assets except for...

inventory and prepaid expense

11

## Accounts receivable turnover =

Sales on account
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Average accounts receivable balance

12

## Average collection period

365 days
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Accounts receivable turnover

13

## Inventory turnover

Cost of goods sold
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Average inventory balance

14

## Average sale period

365 days
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Inventory turnover

15

## Times interest earned =

Earnings before interest expense and income taxes
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Interest expense

16

## Debt-to-equity ratio =

Total liabilities
---------------------------------------------------
Stockholders' equity

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