Equations

Question 1

Liquidity Ratios:

Answer 1

Measures of the short-term ability of the company to pay its maturing obligations and to meet
unexpected needs for cash.

Question 2

a. Working Capital: ?

b. Current Ratio : ?

Answer 2

The difference between the amounts of current assets and current liabilities.
Expressed in $$

Measure used to evaluate a company’s liquidity and short-term debt-paying ability;

current assets
divided by
current liabilities.

Expressed as a number to two decimal points.

Question 3

c. Accounts Receivable Turnover Ratio or Receivables Turnover Ratio –?
d. Average Collection Period : ?

Answer 3

Measure of the liquidity of receivables;

net credit sales
divided by
average net accounts receivables.

Average amount of time that a receivable is outstanding;

365 days
Divided by
the receivables turnover ratio.

Expressed as a number of days to two decimal
points.

Question 4

Inventory Turnover Ratio: ?

Days in Inventory: ?

Answer 4

Measures the liquidity of inventory as the number of times average

goods sold
Divided by
average inventory during the period. Average

Expressed as a number to two
decimal points.
——————————————————————————–
Measure of the average number of days inventory is held.

365 days
divided by
inventory turnover ratio.

Expressed as a number of days to two decimal points.