Exam 2 Equations

Question 1

Inventory Turnover

Answer 1

Cost of Goods Sold / Average Inventory
Inventory turnover ratio measures the efficiency of inventory management. It reflects how many times average inventory was produced and sold during the period

Question 2

Fixed Asset Turnover

Answer 2

Net Sales (Operating Revenue) / Average Net Fixed Assets
measures how efficiently a company utilizes its investment in property, plant, and equipment over time. Its ratio can then be compared to competitors' ratios.

Question 3

Quick Ratio

Answer 3

Quick Assets / Current Liabilities

measures the ability of a company to pay its current obligations.

Question 4

Accounts Payable Turnover

Answer 4

Cost of Goods Sold / Average Accounts Payable

a measure of how quickly a company pays its creditors.

Question 5

Times Interest Earned Ratio

Answer 5

Net Income + Interest Expense + Income Tax Expense / Interest Expense
measures a company’s ability to generate resources from current operations to meet its interest obligations

Question 6

Debt-to-Equity

Answer 6

Total Liabilities / Stockholder’s Equity

measures the balance between debt and equity. Debt funds are viewed as being riskier than equity funds

Question 7

Straight-line Depreciation

Answer 7

(Cost - Residual Value) x (1 / Useful life)

Question 8

Units of Production

Answer 8

[Cost - Residual Value) / Estimated Production] x Actual Production

Question 9

Double Declining Balance

Answer 9

(Cost - Accumulated Depreciation) / (2 / Useful Life)