Lesson-2 on Finance

Question:  What is Interest Coverage Ratio?                      

Answer:

Ø A measure of ability to meet interest expense from the organization earnings. It is calculated as :                                   

Interest Coverage Ratio =   Earning Before Interest & Taxes (EBIT)/Interest Payments                                               

Question:  What is Debt Service Coverage Ratio?                      

Answer:

Ø A measure of ability to meet interest expense and current matured debt under 01 year from its EBIT and Depreciation. It is calculated as :

                                                       

Debt Service Coverage  Ratio = (EBIT+ Depreciation)/(Interest Payments + Amortization Amount)

Question: What is Earnings per Share (EPS)?

Answer:

                                    

Earning Per Share =    (Net Income – Preferred dividends) /Average number of Common Shares outstanding

Question: What is Price/Earnings Ratio?

Answer:

                                        

 Price/Earnings Ratio = (Net Income – Preferred dividends)/Average number of Common Shares outstanding

                          

Companies with high P/E ratios are more likely to be considered "risky" investments than those with low P/E ratios.

Question: What is Retained Earnings?

Answer:

Earnings not paid out as dividends but instead reinvested in the core business or used to pay off debt also called earned surplus or accumulated earnings or inappropriate profit.

Question: What is Accounts Receivable Turnover ?

Answer:

The accounts receivable turnover is a rough measure of how many times a company’s accounts receivable have been turned into cash during the year.

Accounts receivable turnover = Sales on Account/ Average accounts receivable balance

                                              

 Question: What is Inventory Turnover ?

Answer:

The Inventory turnover measures how many times a company’s inventory has been sold and replaced during the year. It is calculated as follows

                                       

Inventory  turnover = Cost of goods sold/ Average inventory balance

                              

Question: What is Dividends payout ratio ?

Answer:

                                       

Dividend Payout Ratio =  Dividends Per share/Earning Per share

                                     

Question: What is Dividends Yield ?

Answer:

The Dividend yield ratio measures the rate of return that would be earned by an investor who buys the common stock at the current market price. It is calculated as follows:

                      

Dividend yield =  Dividends Per share/Market Price Per Share

                         

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