Finanical ratios

Question 1

Current ratio

Answer 1

CA / CL
should greater than 1
if low, then spells trouble and indicates short term solvency problem

Question 2

cash ratio

Answer 2

cash + market securities / cl

too much cash is not good becuase means executives suit does not know what to do with money

Question 3

inventory turnover

Answer 3

sales / inventory

multiple

Question 4

days sales outstanding

Answer 4

AR / (Annual sales/Sales)
is its high, then comp won’t get payments, so eps is high
cash is low bring could bring comp down

Question 5

how to fix high days sales outstanding

Answer 5

sell the ar
relook your credit terms, it may be too linent
give a discount as incentive
low prices than competitor

Question 6

fixed asset turnover

Answer 6

sales/net fixed assets

multiple

Question 7

net fixed assets

Answer 7

assets - depr

Question 8

which has higher stock price old company or new company??

Answer 8

new comp because more assets that are new and new products, so larger net fixed assets with no depr yet so fixed asset turnover is lower.
good asset means more productivity greater margins and competitive pricing

Question 9

TATO

Answer 9

SALES / total assets

higher the better