Q50. Definitions of ratios

What are the names of the following ratios?

(1) Net income / Sales

(2) Gross profit / Sales

(3) Net income / Average total assets

(4) Net income / Average stockholders’ equity

(5) Sales / Average total assets

(6) Cost of goods sold / Average inventory

(7) Credit sales / Average accounts receivable

(8) Credit purchases / Average accounts payable

(9) Current assets / Current liabilities

(10) (Current assets – Current liabilities) / Total assets

(11) Total liabilities / Total stockholders’ equity

(12) Total liabilities / Total assets

A50.

(1) Net income / Sales

= Profit margin ratio

(2) Gross profit / Sales

= Gross profit ratio

(3) Net income / Average total assets

= Return on assets (ROA)

(4) Net income / Average stockholders’ equity

= Return on equity (ROE)

(5) Sales / Average total assets

= Assets turnover ratio

(6) Cost of goods sold / Average inventory

= Inventory turnover ratio

(7) Credit sales / Average accounts receivable

= Accounts receivable turnover ratio

(8) Credit purchases / Average accounts payable

= Accounts payable turnover ratio

(9) Current assets / Current liabilities

= Current ratio

(10) (Current assets – Current liabilities) / Total assets

= Working capital ratio

(11) Total liabilities / Total stockholders’ equity

= Debt to equity ratio

(12) Total liabilities / Total assets

= Debt to assets ratio

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