Auditing Financial Ratios Formulas Flashcards
Working Capital
= CA - CL
Current Ratio (working capital ratio)
Current Assets / Current Liabilities
Acid-Test Ratio
Cash equivalent + Market Securities + AR
/
Current Liabilities
Cash Ratio
Cash equivalents + Marketable Securities
/
Current Liabilites
Accounts Receivable Turnover
Net Credit Sales
/
Average Account Receivables
Accounts Receivable Turnover in days
355 Days
/
Accounts Receivable Turnover
Inventory Turnover
Cost of Goods Sold
________________
Average Inventory
Operating Cycle
(indicates the # of days between acquisition of inventory and realization of cash from selling inventory.
AR turnover in days + Inventory Turnover in days
Working Capital Turnover
This ratio indicates how effectively working capital is used
Sales / Average Working Capital (CA - CL)
Total Asset Turnover
This ratio is indicative of a firm’s effective use of its assets. A high ratio indicates effective asset use to generate sales.
Sales
/
Average Total Assets
Account Payable Turnover
COGS
/
Average AP
Days in AP
Average Account Payable
_____________________
(COGS / 365)
Net profit Margin
This ratio indicates profit rate and when used with the asset turnover ratio, indicates rate of return on assets as shown in items
Net Income / Net Sales
Return on Total Assets
Net Income / Average Total Assets
Debt / Equity
Total Liabilities / Common Stockholders’ Equity
