Finance in Construction Management 2 Flashcards
What is the purpose of the Liquidity Ratio?
The liquidity ratio measures the ability to cover short-term debt with its current assets.
What is the purpose of a Leverage Ratio?
Leverage Ratio measures the risk level tolerance of a business.
Leverage Ratio = Debt / Equity
What is the difference between a high vs. low leverage ratio?
The higher the ratio, the more risk the business is taking on. A lower ratio can suggest that the company is not taking advantage of debt to expand.
What is the purpose of AR Turnover Ratio?
It measures how effectively a company extends credit and collects debts.
Net Receivable Sales (from the Income Statement) / Average Net Receivables (from the Balance Sheet)
What is the purpose of the AR to Sales ratio?
AR / Sales ratio shows how much sales are made on credit vs. cash (indicative of a company’s reliance on cash).
Who can the AR to Sales Ratio be used?
It can be used by creditors to determine debt parameters.
What is a collection period?
It is the average number of days a client takes to pay their bills, which shows the effectiveness of the credit and collection policies.
365 Days *
Average Accounts Receivable / Net Credit Sales.
How should a company pay its Accounts Payable?
Quickly but not too quickly that it misses the opportunity to use the funds to invest.
What is the purpose of an AP turnover ratio?
AP Turnover Ratio shows how many times a company pays off its accounts payable in a given period and measures how efficiently a company is paying its suppliers and short-term debts.
Total Purchases /
(Beginning AP balance + Ending AP balance) / 2
What is an Enterprise Resource Planning (ERP) system?
It is a system that helps businesses manage day-to-day activities such as accounting, procurement, project management, risk management and compliance, and supply chain operations.
What is accounting software?
It is a centralized software platform that tracks all financial information, captures all the financial information within an organization, and produces reports to show the financial position of a company and its performance over a period of time.
What is the Site Acquisition Process?
Site Assembly -> Market Open Listing -> Redevelopment of the old site -> Zoning and Density
What is the Site Acquisition Process?
Site Assembly -> Market Open Listing -> Redevelopment of the old site -> Zoning and Density
