Copyright © 2008, The McGraw-Hill Companies, Inc.
Chapter 12 Summary 521Topic Key Ideas, Formulas, and Techniques Examples
Income Ratios, p. 508 • Gross profi t margin ^ ___________Gross profi t^
Net sales- Net profi t margin ^ ___Net income^
Net sales
Calculate the gross and net profi t
margins based on given fi nancial
statements and interpret the results.
(Example 12.3.1)Effectiveness Ratios,
p. 509 • ROA ___________Net income
To tal assets- ROE __Owners’ equityNet income
Calculate the ROA and ROE based
on given fi nancial statement and
interpret the results. (Example 12.3.2)Conversion Ratios,
p. 510 • Inventory turnover ^Cost of goods sold
__________________Average inventory- Average collection days ___Accounts receivableNet sales per day
Calculate the inventory turnover and
average collection days ratios based
on given fi nancial statements and
interpret the results. (Example 12.3.3)Balance Sheet Ratios,
p. 511 • Current ratio ^________________Current assets
Current liabilities- Quick ratio
Current assets ___ inventory prepaid expenses
Current liabilities - Liabilities-to-equity ratio ___To tal liabilities
Owners’ equity
Calculate the balance sheet ratios
based on given fi nancial statements
and interpret the results.
(Example 12.3.4)Valuation Ratios,
p. 512 • PE ^________________________Price per share
Annual earnings per share^- Price-to-book ____Annual earnings per sharePrice per share
Calculate the PE and price-to-book
ratios for a company given its fi nancial
statements, stock price, and number
of shares.
(Example 12.3.6)