Finance Mgmt

Question 1

Measures the extent to which current assets exceed current liabilities and, thus, are uncommitted in the short term

Answer 1

Working Capital

Question 2

Working Capital Ratio Formula

Answer 2

Current Assets/Current Liabilites

Question 3

Working Capital Formula

Answer 3

Current Assets - Current Liabilites

Question 4

Measures the “number of times” that cash and assets that can be converted quickly to cash cover current liabilities

Answer 4

Acid Test Ratio (Quick Ratio)

Question 5

Acid Test Ratio Formula

Answer 5

Cash + Cash Equivalents + (Net) Receivables + Short-term Marketable Securities) / Current Liabilities

Question 6

number of times current liabilities are covered with cash generated from operations

Answer 6

Operating Cash Flow Ratio

Question 7

Cash Flow from Operating Activities / Ending Current Liabilities

Answer 7

Operating Cash Flow Ratio

Question 8

the number of days that cash and assets that can be quickly converted to cash to cover operating costs

Answer 8

Defensive-Interval Ratio

Question 9

Cash + Cash Equivalents + (Net) Receivables + Short-term Marketable Securities) / Average Daily Cash Expenditures

Answer 9

Defensive-Interval Ratio

Question 10

Number of days after a credit sale before the payment is received

Answer 10

Average Collection Period

Question 11

Days in Year × Average Accounts Receivable) / Credit Sale for Period

Answer 11

Average Collection Period

Question 12

Measures the ability of current earnings to cover interest payments for a period

Answer 12

Times Interest Earned Ratio

Question 13

Times Interest Earned Ratio Formula

Answer 13

Net Income + Interest Expense + Income Tax Expense) / Interest Expense

Question 14

Measures the ability of current earnings to cover preferred dividends for a period

Answer 14

Times Preferred Dividends Earned Ratio

Question 15

Net Income / Annual Preferred Dividend Obligation

Answer 15

Times Preferred Dividends Earned Ratio

Question 16

measures that assess the management of accounts receivable, inventory, accounts payable

Answer 16

Operational Activity Ratios

Question 17

Measures the number of times that accounts receivable turnover (are incurred and collected)

Answer 17

Accounts Receivable Turnover

Question 18

Accounts Receivable Turnover Formula

Answer 18

Net Credit Sales/ Average Accounts Rec

Question 19

Measures the average number of days required to collect receivables

Answer 19

Number of Days’ Sales in Receivables

Question 20

Number of Days’ Sales in Receivables Formula

Answer 20

Days in year / AR turnover

Question 21

Measures the number of times that inventory turns over (is acquired and sold or used)

Answer 21

Inventory Turnover

Question 22

Inventory Turnover Formula

Answer 22

COGS / Avg Inventory

Question 23

Measures the number of days inventory is held before it is sold or used

Answer 23

Number of Days’ Supply (Sales) in Inventory

Question 24

Number of Days’ Supply (Sales) in Inventory

Answer 24

Days in year / Inventory turnover

Question 25

Accounts Payable Turnover

Answer 25

Credit purchases/Average accounts payable

Question 26

Annual sales (or revenue)/Average owners’ equity

Answer 26

Capital Turnover

Question 27

Operating Cycle Length

Answer 27

Number of days’ sales in average receivables + Number of days’ supply in inventory