Balance Sheet Ratios

Question 1

Current Ratio (Liquidity Ratio)

Answer 1

***If something means ‘current,’ we are referring to within 1 year time frame or 1 operation cycle which is an inventory cycle.

current ratio = current assets/ current liabilities

Question 2

Quick Ratio (Liquidity Ratio)

Answer 2

QUICK= YOU THINK OF QUICK MONEY(LESS THAN 1 WEEK)

Quick Ratio = (Cash+ Accounts Receivable + Marketable Securities)/ (Current Liabilities)

Question 3

Cash Ratio (Liquidity Ratio)

Answer 3

CASH RATIO (WE TINKING ONLY CASH 1 DAY)

CASH RATIO= Cash+ Marketable Securities/ (Current liabilities)

Question 4

Total Debt-To-Equity Ratio (Solvency Ratio)* (capital structure analysis)

Answer 4

**Solvency= measures the firms ability to pay long term obligations.

Total Debt-Equity Ratio= Total Debt/ Equity

Measures capital structure as well

Question 5

Debt Ratio (Solvency Ratio)

Answer 5

Debt Ratio = Total Debt/Total Assets

Question 6

Financial Leverage Ratio (Solvency Ratio)

Answer 6

Financial Leverage Ratio = total assets/ total equity

How much of your own money is invested in your assets?

• higher ratio means you are financed more w/ liabilities
• lower ratio means you are financed less w/ liabilities

Question 7

Vertical Common-Size Balance Sheet Ratio**

Answer 7

is a generic term for all ratios in general that have to do with the balance sheet:

**vertical common-size balance sheet ratio= balance sheet account/ total assets

Question 8

Days of Sales Outstanding Ratio

Answer 8

Day of Sales Outstanding- is the number of days that it takes for a customer to pay their bills based on the accounts receivable.

Day of Sales Outstanding= 365/ accounts receivable

How long does it take for customers to pay their bills?

Question 9

Days of Inventory on Hand Ratio

Answer 9

Days of Inventory on Hand Ratio = 365/ Inventory Count

*Usually, the inventory count is close to the standard norm for the market. If more, it can mean TOO MUCH money is tied up in INVENTORY= OBSOLETE.

If the Days of inventory on Hand Ratio is LESS THAN NORMAL, than you have inadequate inventory utilization.

**EQUILIBRIUM= STANDARD NORM FOR THE INDUSTRY

Question 10

Number of Days Payable Ratio

Answer 10

Number of Days Payable is the number of days it takes for a company to pay its bills.

Number of Days Payable= 365/ Accounts payable

Question 11

Debt-to-Capital Ratio* (solvency ratio)

Answer 11

Debt-to-Capital Ratio= Total Debt/ (Total Debt + Total equity)

Question 12

Debt-to-Assets Ratio (solvency ratio)

Answer 12

Debts-to-Assets Ratio= Total Debt/ Total Assets