Investment and Finance
The most frequently asked tax questions related to Investment and Finance
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Answer Tax QuestionsWhat is the Debt to Equity Ratio ?
Asked Wednesday, October 11, 2000 by an anonymous user
This ratio illustrates the relationship between capital contributed by the creditors (such as banks and suppliers) which loan a business cash and the owners equity remaining in the business. It is commonly used to measure the degree of financial leverage of the business. The Total Long-Term Debt, divided by Stockholders' Equity = DTE Ratio. (Stockholders Equity = Total Assets, minus Total Liabilities).
What is the Rate of Return On Sales Ratio ?
Asked Wednesday, October 11, 2000 by an anonymous user
Operating Income, divided by Net Sales = ROROS Ratio. This ratio illustrates how much net profit was derived from every dollar of sales. It helps indicate if the business is generating enough sales to cover fixed costs and leave an acceptable residual profit.
What is the Rate of Return on Assets Profitability ratio?
Asked Wednesday, October 11, 2000 by an anonymous user
This ratio is sometimes called the business' return on investment. It measures the overall effectiveness of management in generating profits with its available assets. Net Profits after taxes, divided by Total Assets = ROA.
What is the Return on Equity Profitability ratio ?
Asked Wednesday, October 11, 2000 by an anonymous user
The ROE measures the return earned by the owners' (preferred and common stockholders) investment in the business. Net Profit after taxes divided by stockholders Equity = ROE.
What is the Average Collection Period ratio?
Asked Wednesday, October 11, 2000 by an anonymous user
This ratio illustrates the average number of days it takes to collect cash from the business' credit sales. Accounts Receivable, divided by (Annual Sales, divided by 365)= the Average Collection Period. The Average Collection Period is meaningful only in relation to the business' credit terms.
What is the Inventory Turnover Activity ratio ?
Asked Wednesday, October 11, 2000 by an anonymous user
This ratio illustrates how many times your initial inventory is replaced in a year. Cost of Goods Sold, divided by Average Inventory = IT Ratio. Also, Days in the year, divided by the Inventory Turnover Ratio = Number of days in Inventory Ratio. Faster turnovers are viewed as a positive trend. The result is meaningful only when compared to other businesses in the same industry or the same business' past inventory turnover.
What is the Fixed Asset Turnover Efficiency ratio ?
Asked Wednesday, October 11, 2000 by an anonymous user
This Ratio measures the efficiency with which a business has been using its fixed or earning assets to generate sales. Sales, divided by Net Fixed Assets = FAT Ratio.
What is Earnings Per Share (EPS) as it relates to Financial Statements ?
Asked Wednesday, October 11, 2000 by an anonymous user
The EPS represents the number of dollars earned on behalf of each outstanding share of common stock. Earnings available for common stockholders divided by the number of shares of common stock outstanding = EPS. EPS is an amount earned on behalf of each share outstanding. It does not represent the amount of earnings actually distributed to shareholders.
What is the Price / Earnings ( P/E ) Ratio ?
Asked Wednesday, October 11, 2000 by an anonymous user
The P/E Ratio reflects the amount investors are willing to pay for each dollar of the business's earnings. The higher the P/E Ratio, the greater the investors’ confidence in the firm. The P/E ratio represents the "multiple" that the stock market places on the earnings of a company. Market price per share of common stock divided by Earnings per share of common stock = P/E Ratio.
