Credit Management Equations

Question 1

What is the current ratio equation?

Answer 1

Current Assets / Current Liabilities

Question 2

What is the quick ratio or acid test ratio equation?

Answer 2

Current assets - inventory / Current Liabilities

Question 3

What is the receivable collection period equation?

Answer 3

receivables * 365 / Credit Sales

Question 4

What is the payable period equation?

Answer 4

payables * 365 / credit purchases

Question 5

What is the inventory holding period equation?

Answer 5

inventory * 365 / cost of sales

Question 6

What is the gross profit margin equation?

Answer 6

gross profit * 100 / revenue

Question 7

What is the operating profit margin equation?

Answer 7

profit from operations * 100 / revenue

Question 8

What is the net profit margin equation?

Answer 8

profit * 100 / revenue

Question 9

What is the interest cover equation?

Answer 9

profit from operations / finance costs

Question 10

What is the return on capital employed equation?

Answer 10

profit from operations * 100 / capital employed

Question 11

What is the gearing equation?

Answer 11

total debt * 100 / total debt + equity

DEBT DOES NOT INCLUDE TRADE PAYABLES JUST ITEMS WHICH BEAR INTEREST!

Question 12

What is the working capital cycle equation?

Answer 12

Inventory days + receivable days - payable days