ewan ko Flashcards
Formula used in quick ratio
Current Asset - Inventory / current liabilities
What do we measure in net working capital ratio
how much liquid asset is available after deducting current liabilities
What happens if the current ratio is greater
the company has the ability to cover short term liabilities
what happens if the current ratio is less
the company hsd no ability to cover short term liabilities
It measures number of times per yeay of the companies ability to collect its accounts receivable
accounts receivable turnover
Formula for accounts receivable turnover
Net sales / Average Accounts receivable
Formula to get the average accounts receivable
Accounts receivable year 1 + Accounts receivable year 2 / 2
Where do we get the net sales from?
From Sci
It measures the average number of days, receivable are converted in cash
Days of sales outstanding
Formula for days of sales outstanding
Days in a year (365) / Account Receivable turnover
this indicates if the firm holds excessive levels of inventory that decrease the firms profitability
Inventory turnover
How do we measure in inventory turnover
Cost of sales/average inventory
This measure how much can be spent on the operating expenses to reach target profit
gross profit margin
under the profitability ratio’s are: (4)
- gross profit margin
-profit margin
-return on total asset
-return on equity
It is alternative referred as performance ratio
profitability ratio
It measures the ability of the firm to make profit
profitability ratio
Formula for times interest earned ratio
EBIT / Interest Expense
It indicates the margin of safety for payment of interest charges. also, it provides insight on a firms ability to payits debt obligation
times interest earned ratio
Formula for debt to equity ratio
total liabilities (TL) / Owners equity (OE)
It compares resources provide by creditors with resources given by the shareholders / the owners
debt to equity ratio
Formula of Debt to asset ratio
Total Liabilities (TL) / Total Asset (TA)
It measures the percentage provided by the creditors
debt to asset ratio
The three topics under solvency/leverag
-debt to asset ratio
-debt to equity ratio
-times interest earned ratio
“how many percent do we loan for our capital?”
solvency/ leverage
