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CMA USA Ratio Definitions 2015

CMA USA Ratio Definitions 2015

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Shameem Jazir
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600 views4 pages

CMA USA Ratio Definitions 2015

CMA USA Ratio Definitions 2015

Uploaded by

Shameem Jazir
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CMA EXAM

RATIO DEFINITIONS
Abbreviations
EBIT = Earnings before interest and taxes
EBITDA = Earnings before interest, taxes, depreciation and amortization
EBT = Earnings before taxes
EPS = Earnings per share
ROA = Return on assets
ROE = Return on equity
Part 1 Financial Reporting, Planning, Performance, and Control
Section C Performance Management
Section C.3 Performance measures
e*. ROI = Income of business unit / Assets of business unit
g. Residual Income (RI) = Income of business unit (Assets of business unit x required rate
of return)
Note: Income means operating income unless otherwise noted
Part 2 Financial Decision Making
Section A Financial Statement Analysis

Section A.1 Basic Financial Statement Analysis


a.

b.
c.

Common size statement = line items on income statement and statement of cash flows
presented as a percent of sales; line items on balance sheet presented as a percent of
total assets
Common base year statements = (new line item amount /base year line item amount)
x 100
Annual growth rate of line items = (new line item amount / old line item amount) 1

Letter references refer to subtopics in Learning Outcome Statements

Revised 3/07/2014

Copyright 2014 Institute of Certified Management Accountants

Section A.2 Financial Ratios


Unless otherwise indicated, end of year data is used for balance sheet items; full year data is used for
income statement and statement of cash flow items.
Liquidity
a(1) Current ratio = current assets / current liabilities
a(2) Quick ratio or acid test ratio = (cash + marketable securities + accounts receivable) /
current liabilities
a(3) Cash ratio = (cash + marketable securities) / current liabilities
a(4) Cash flow ratio = operating cash flow / current liabilities
a(5) Net working capital ratio = net working capital / total assets
Leverage
f(1) Degree of financial leverage = % change in net income / % change in EBIT, or
= EBIT / EBT
f(2) Degree of operating leverage = % change in EBIT / % change in sales, or
= contribution margin / EBIT
h.

Financial leverage ratio = assets / equity

i(1) Debt to equity ratio = total debt / equity


i(2) Long-term debt to equity ratio = (total debt current liabilities) / equity
i(3) Debt to total assets ratio = total debt / total assets
j(1) Fixed charge coverage = earnings before fixed charges and taxes / fixed charges
fixed charges include interest, required principal repayment, and leases
j(2) Interest coverage (times interest earned) = EBIT / interest expense
j(3) Cash flow to fixed charges = (cash from operations + fixed charges + tax payments) / fixed
charges. Note: cash from operations is after-tax.
Activity
l(1) Accounts receivable turnover = credit sales / average gross accounts receivables
l(2) Inventory turnover = cost of goods sold / average inventory
l(3) Accounts payable turnover = credit purchases / average accounts payable
m(1) Days sales in receivables = average accounts receivable / (credit sales / 365), or
= 365 / accounts receivable turnover
m(2) Days sales in inventory = average inventory / (cost of sales / 365), or
= 365 / inventory turnover
m(3) Days purchases in payables = average payables / (purchase / 365), or
= 365 / payables turnover
n(1) Operating cycle = days sales in receivables + days sales in inventory
n(2) Cash cycle = Operating cycle days purchases in payables
o(1) Total asset turnover = sales / average total assets
o(2) Fixed asset turnover = sales / average net plant, property and equipment
Profitability
Copyright 2014 Institute of Certified Management Accountants

p(1)
p(2)
p(3)
p(4)

Gross profit margin percentage = gross profit / sales


Operating profit margin percentage = operating income / sales
Net profit margin percentage = net income / sales
EBITDA margin = EBITDA / sales

q(1) ROA = net income / average total assets


q(2) ROE = net income / average equity
Market
r(1) Market-to-book ratio = current stock price / book value per share
r(2) Price earnings ratio = market price per share / EPS
r(3) Price to EBITDA ratio = market price per share / EBITDA per share
s.

Book value per share = (total stockholders equity preferred equity) /


number of common shares outstanding

u(1) Basic EPS = (net income preferred dividends) / weighted average common shares
outstanding
(Number of shares outstanding is weighted by the number of months shares are
outstanding)
u(2) Diluted EPS = (net income preferred dividends) / diluted weighted average common
shares outstanding
(Diluted EPS adjusts common shares by adding shares that may be issued for convertible
securities and options)
v(1)
v(2)
v(3)
v(4)

Earnings yield = EPS / current market price per common share


Dividend yield = annual dividends per share / market price per share
Dividend payout ratio = common dividend / earnings available to common shareholders
Shareholder return = (ending stock price beginning stock price + annual dividends per
share) / beginning stock price

Section A.3 Profitability Analysis


a(1) ROA = Net profit margin x total asset turnover; (net income / sales) x (sales / average
total assets) = net income / average total assets
b(2) ROE = ROA x financial leverage; (net income / average total assets) x (average total
assets / average equity )= net income / average equity
g(1) Operating profit margin percentage = operating income / sales
g(2) Net profit margin percentage = net income / sales
j.

Sustainable growth rate = (1- dividend payout ratio) x ROE

Section B Corporate Finance


Section B.4 Working capital management
b. Net working capital = current assets current liabilities
.
Copyright 2014 Institute of Certified Management Accountants

Section C Decision Analysis


Section C.1 Cost/volume/profit analysis
f(1) Breakeven point in units = fixed costs / unit contribution margin
f(2) Breakeven point in dollars = fixed costs / (unit contribution margin / selling price)
i(1) Margin of safety = planned sales breakeven sales
i(2) Margin of safety ratio = margin of safety / planned sales

Section C.3 Pricing


n.

Elasticity is calculated using the midpoint formula. For price elasticity of demand
E = [change in quantity / (average of quantities)] / [change in price / (average of prices)]

Copyright 2014 Institute of Certified Management Accountants

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