10 RATIOS YOU MUST KNOW
Liquidity Ratios
Current (working capital) ratio Acid-test (quick) ratio – Cash flow liquidity ratio Accounts receivable turnover Number of days’ sales in accounts receivable Inventory turnover – Total assets turnover

651

10 RATIOS YOU MUST KNOW
Equity (Long-Term Solvency) Ratios
Equity (stockholders’ equity) ratio – Equity to debt

10 RATIOS YOU MUST KNOW
Profitability Tests
– Return on operating assets Net income to net sales (return on sales or “profit margin”) $ Return on average common stockholders’ equity (ROE) – Cash flow margin Earnings per share – Times interest earned – Times preferred dividends earned

10 RATIOS YOU MUST KNOW
Market Tests
– Earnings yield on common stock Price-earnings ratio – Payout ratio on common stock – Dividend yield on common stock – Dividend yield on preferred stock – Cash flow per share of common

stock

Now, let’s look at Norton Corporation’s 1999 and 1998 financial statements.

NORTON CORPORATION Balance Sheets December 31, 1999 and 1998 1999 Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment: Land Buildings and equipment, net Total property and equipment Total assets $ 165,000 116,390 281,390 346,390 $ $ 30,000 20,000 12,000 3,000 65,000 $

1998

20,000 17,000 10,000 2,000 49,000 123,000 128,000 251,000 300,000

NORTON CORPORATION Balance Sheets December 31, 1999 and 1998 1999 Liabilities and Stockholders' Equity Current liabilities: Accounts payable Notes payable, short-term Total current liabilities Long-term liabilities: Notes payable, long-term Total liabilities Stockholders' equity: Common stock, $1 par value Additional paid-in capital Total paid-in capital Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 27,400 158,100 185,500 48,890 234,390 $