Chapter 8 Flashcards
Liquidity
Measure of how quickly an asset can be converted into cash or a liability can be paid
Current ratio
Current assets divided by current liabilities
Quick ratio
Quick assets divided by current liabilities
Quick assets
Consist of cash, short-term securities, accounts receivable and short-term notes
Financial flexibility
A business’ ability to adapt to change
Debt ratio
Total liabilities divided by total assets
Return on total assets
Net income and interest expense are added together and then divided by average total assets
Return on owner’s equity
Net income divided by average owner’s equity
Operating capability
A business’ ability to continue a given level of operations
Inventory turnover
Cost of goods sold divided by average inventory
Number of days in the selling period
Number of days in a business’ business year divided by its inventory turnover
Accounts receivable turnover
Net credit sales divided by average accounts receivable
Number of days in the collection period
Number of days in a business’ business year divided by its accounts receivable turnover
Days’ sales in receivables
A ratio that tells us how many days’ worth of sales are tied up in accounts receivable
Business activity statement (BAS)
A form used by businesses that facilitates the payment and offset of tax instalments to the Australian Taxation Office for a given period. It is used for reconciling the goods and services tax instalments, company tax instalments and fringe benefit tax instalments
