Activity, receivable turnover, here we go, accounts receivable turnover measures liquidity
of receivables. Inventory, measures liquidity of inventory because it tells me, are these
receivables liquid? Whether they're going to turn into receivables, cash.
Inventory turnover, will the inventory turn into a sale? Because it's not obsolete. Asset
turnover, net sales over average total assets measures how efficiently assets are used to
generate sales. Number of days' supply and average inventory, 360 over inventory turnover.
So this is important. Number of days� supply in average inventory
and number of day�s sales in average receivables. So if we were to come back here and let's
say our AR turnover and what we said was it is credit sales over average AR. Now what
did that equal? 6.0 That tells me receivables turnover six times a year or 360 over six
is 60 days. It tells us they turnover about every 60 days and you can do the same thing
for both receivables and inventory. Inventory turns over same thing. That means
if inventory's over 60 days old. And we did that in our head, we said if it turns over
six time a year, six times a year means every two month, two months is 60 days. But the
way to calculate it is just 360 over this gives your number of days. So what do they
define that as? They define that as number of days� supply in inventory measures the
number of days required to sell inventory. Receivables, measures the number of days required
to collect receivables. Profitability, profit margin on sales also called your gross margin.
Your gross margin, that is net income over net sales, measures net income generated by
each dollar of sale. So what is the income, net over sales?
Another one, rate of return on assets, measures overall profitability. Rate of return on common
stock, measures profitability of owner's investment. EPS, Earnings per Share. We'll talk a lot
about-- We'll have to calculate simple and diluted. We'll calculate those in financial
accounting. Measure net income earned on each share of
common stock. It doesn't mean how much money you're actually going to earn, it's not your
dividend. Earnings per share just says how much per share did each person, would each
person have earned based on the company's earnings. It doesn't mean how much you�re
getting as a dividend but again, we'll do those calculations in the financial accounting
exam. But that's important. Because most people think earning per share means how much you're
getting as a dividend, it's not. Price earnings, market price over EPS measures
the ratio of the market price per share, two earnings per share. Payout ratio measures
percentage of earnings distributed in the form of dividends, that's payout. Other ratios
coverage, debt to equity, shows creditors the corporation's ability to sustain losses
because it's your total debt over your stockholder's equity. Debt to total assets, measures the
percentage of total assets provided by creditor�s time�s interest earned, measures the ability
to meet interest payments as they come due. Cash debt to coverage, measures the ability
to repay its total liabilities. And book value per share, measures the amount each share
would receive if the company were liquidated at the amounts reported on the balance sheet.
So it's basically your common stockholder's equity over the common shares outstanding.
That's called your book value per share or book value per common. Because we have book
value per common that's after the preferred get paid out. Again, we'll talk more about
that in where? In your financial accounting exam which I know you just can't wait for
because it gets better and better. What is this talking about? Analytical procedures
so what does that mean again. What it says is to keep it in perspective, these are the
audit procedures, and these are the substantive tests. We've talked about ICURRIIA, there's
your A. Analytical procedures, study of data comparisons and relationships.
This is one of your different tests. You've got test of details of account transactions,
balances and disclosures and analytical procedures study of data comparisons and relationships.
It's important that you understand all of these. It's important that you also see how
they all tie together which we'll talk about in just a moment.