F7: Appendix Items

Question 1

Liquidity Ratios definition

Answer 1

Measures a firm’s ST ability to pay maturing obligations

Question 2

Activity Ratios definition

Answer 2

Measures how effectively an enterprise is using its assets

Question 3

Profitability Ratios definition

Answer 3

Measures the success or failure of an enterprise for a given time period

Question 4

LT Debt Paying Ability Ratios (coverage ratios) defintion

Answer 4

Measures security for long-term creditors/investors

Question 5

4 Types of Liquidity Ratios

Answer 5

1- Working Capital
2- Current Ratio (working capital ratio)
3- Acid-test Ratio
4- Cash Ratio

Question 6

Working Capital formula

Answer 6

CA - CL

Question 7

Current Ratio (working capital ratio)

Answer 7

CA / CL

Question 8

Acid-test Ratio

Answer 8

(Cash equivalents + marketable securities + net receivables) / CL

Question 9

Cash Ratio

Answer 9

(Cash equivalents + marketable securities) / CL

Question 10

7 Types of Activity Ratios

Answer 10

1- Accounts Receivable Turnover
2- Accounts Receivable Turnover in Days
3- Inventory Turnover
4- Inventory Turnover in Days
5- Operating Cycle
6- Working Capital Turnover
7- Total Asset Turnover

Question 11

Accounts Receivable Turnover

Answer 11

(Net credit sales) / (average net receivables)

Question 12

Accounts Receivable Turnover in Days

Answer 12

(Average net receivables) / (net credit sales/365)

OR

(365 days) / Receivable turnover

Question 13

Inventory Turnover

Answer 13

(COGS) / (Average Inventory)

Question 14

Inventory Turnover in Days

Answer 14

(Average Inventory) / (COGS/365)

OR

(365 days) / Inventory turnover

Question 15

Operating Cycle

Answer 15

AR turnover in days + Inventory turnover in days

Question 16

Working Capital Turnover

Answer 16

(Sales) / (Average working capital)

Question 17

Total Asset Turnover

Answer 17

(net sales) / (average total assets)

Question 18

5 Types of Profitability Ratios

Answer 18

1- Net Profit Margin
2- Return on Total Assets
3- DuPont Return on Assets
4- Return on Investment
5- Return on Common Equity

Question 19

Net Profit Margin

Answer 19

(NI) / (Net Sales)

Question 20

Return on Total Assets

Answer 20

(NI) / (Average total assets)

Question 21

DuPont Return on Assets

Answer 21

Net Profit Margin X Total Asset Turnover

OR

(NI/Net Sales) X (Net Sales/Avg Total Assets)

Question 22

Return on Investment

Answer 22

[NI + Interest Expense times (1-T)] / Average of LT Liabilities and equity

Question 23

Return on Common Equity

Answer 23

(NI - Preferred Dividends) / Average common equity

Question 24

4 Types of LT Debt-Paying Ratios

Answer 24

1- Debt/Equity
2- Debt Ratio
3- Times Interest Earned
4- Operating Cash Flow/ Total Debt

Question 25

Debt/Equity

Answer 25

(Total Liabilities) / (Common SHE)

Question 26

Debt Ratio

Answer 26

(Total Liabilities) / (Total Assets)

Question 27

Times Interest Earned

Answer 27

(Recurring income before taxes and interest) / Interest

Question 28

Operating Cash Flow/ Total Debt

Answer 28

(Operating cash flow) / Total Debt