16. Financial ratios (S29.2–S29.5) There are no universally accepted definitions of financial ratios, but five of the following ratios are clearly incorrect. Substitute the correct definitions.

a. Debt–equity ratio = (long-term debt + value of leases)/(long-term debt + value of leases +

equity)

b. Return on equity = (EBIT − tax)/average equity

c. Profit margin = net income/sales

d. Days in inventory = sales/(inventory/365)

e. Current ratio = current liabilities/current assets

f. Sales-to-net-working-capital = average sales/average net working capital g. Quick ratio = (current assets − inventories)/current liabilities h. Times-interest-earned = interest earned × long-term debt Chapter 29 Financial Analysis 853