Page 708 - Accounting Principles (A Business Perspective)

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Cost of goods sold USD 6,197,000,000 =2.94time
Average inventory = USD 2,111,000,000
e. Total assets turnover:
Netsales USD18,701,000,000 =.64time
Average totalassets = USD29,003,000,000
f. Equity ratio:
Stockholders'equity = USD 4,140,000,000 =14.05 per cent
Total assets USD 29,475,000,000

g. Times interest earned ratio:
Income beforeinterest alsotaxes = USD647,000,000 =.63time
Interest expense USD1,031,000,000

Key terms
Accounts receivable turnover Net credit sales (or net sales) divided by average net accounts receivable.
Acid-test (quick) ratio Ratio of quick assets (cash, marketable securities, and net receivables) to current
liabilities.
Cash flow liquidity ratio Cash and marketable securities plus net cash provided by operating activities
divided by current liabilities.
Cash flow margin Net cash provided by operating activities divided by net sales.
Cash flow per share of common stock Net cash provided by operating activities divided by the average
number of shares of common stock outstanding.
Common-size statements Show only percentages and no absolute dollar amounts.
Comparative financial statements Present the same company's financial statements for two or more
successive periods in side-by-side columns.
Current ratio Also called working capital ratio. Current assets divided by current liabilities.
Debt to equity ratio Total debt divided by stockholders' equity.
Dividend yield on common stock Dividend per share of common stock divided by current market price
per share of common stock.
Dividend yield on preferred stock Dividend per share of preferred stock divided by current market price
per share of preferred stock.
Earnings per share (EPS) The amount of earnings available to common stockholders (which equals net
income less preferred dividends) divided by weighted-average number of shares of common stock
outstanding.
Earnings yield on common stock Ratio of current EPS to current market price per share of common
stock.
Equity (stockholders' equity) ratio The ratio of stockholders' equity to total assets (or total equities).
Horizontal analysis Analysis of a company's financial statements for two or more successive periods
showing percentage and/or absolute changes from prior year. This type of analysis helps detect changes in a
company's performance and highlights trends.
Inventory turnover Cost of goods sold divided by average inventory.
Liquidity Company's state of possessing liquid assets, such as (1) cash and (2) other assets that will soon be
converted to cash.
Net income to net sales Net income divided by net sales.
Net operating income Income before interest and taxes.
Nonoperating assets Assets owned by a company but not used in producing operating revenues.
Nonoperating income elements Elements excluded from net operating income because they are not
directly related to operations; includes such elements as extraordinary items, cumulative effect on prior year
of changes in accounting principle, losses or gains from discontinued operations, interest revenue, and
interest expense.
Number of days' sales in accounts receivable The number of days in a year (365) divided by the
accounts receivable turnover. Also called the average collection period for accounts receivable.

Accounting Principles: A Business Perspective 709 A Global Text