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Calculations Lindsay Rodrigue Accounting 30 Ms. Lozinski May 29, 2001

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In this presentation, various calculations used in Accounting 30 will be displayed and explained.

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Earnings Performance Analysis Rate Earned on Average Total Assets Rate Earned on Average Stockholder’s Equity Rate Earned on Net Sales Earnings per Share Price-Earnings Ratio

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Rate Earned on Average Total Equity This is how a business is increasing net income by using its total assets. Net Income After Federal Taxes - Average Total Assets = Rate Earned on Average Total Assets

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Rate Earned on Average Stockholder’s Equity This calculation shows which is the best investment for their business. Net Income After Federal Taxes / Average Stockholder’s Equity = Rate Earned on Average Stockholder’s Equity

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Rate Earned on Net Sales How much a business earns from net sales. This depends on the costs a business has also. Net Income After Federal Taxes / Net Sales = Rate Earned on Net Sales

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Earnings per Share How much net income one share of common stock brings in during a fiscal period. Net Income After Federal Taxes / Shares of Capital Stock Outstanding = Earnings per Share

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Price Earnings Ratio This calculation tells investors what kind of return they will get from a certain company’s stock. Market Price Per Share / Earnings per Share = Price Earnings Ratio

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Efficiency Analysis Accounts Receivable Turnover Ratio Average Number of Days for Payment Merchandise Inventory Turnover Ratio

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Accounts Receivable Turnover Ratio Shows how many times the average amount of accounts receivable is collected annually. Net Sales on Account / Average Book Value of Accounts Receivable = Accounts Receivable Turnover Ratio

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Average Number of Days for Payment How many days that customers are given to pay their accounts. Days in Year / Accounts Receivable Turnover Ratio = Average Number of Days for Payment

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Merchandise Inventory Turnover Ratio How many times a year merchandise inventory is sold. Cost of Merchandise Sold / Average Merchandise Inventory = Merchandise Inventory Turnover Ratio

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Financial Strength Analysis Working Capital Current Ratio Acid-Test Ratio Debt Ratio Equity Ratio Equity per Share

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Working Capital The amount of assets that a business has when all of their liabilities have been paid off. Total Current Assets - Total Current Liabilities = Working Capital

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Current Ratio Shows assets in relation to the liabilities of a business. Total Current Assets / Total Current Liabilities = Current Ratio

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Acid-Test Ratio Determines how well a business could pay off all of its liabilities immediately if it needed to. Total Quick Assets / Total Current Liabilities = Acid-Test Ratio

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Debt Ratio Shows how much of a business’ assets are financed by borrowed capital. Total Liabilities / Total Assets = Debt Ratio

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Equity Ratio The percentage of assets that a stockholder’s equity will provide. Total Stockholder’s Equity / Total Assets = Equity Ratio

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Equity per Share How much of the total stockholder’s equity is in a single share of stock. Total Stockholder’s Equity / Shares of Capital Stock Outstanding = Equity per Share

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In Conclusion... Some of these calculations may seem frustrating. (Click on video) However, with a little time and practice, it won’t be so confusing.

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