Formulas

Question 1

Working capital

Answer 1

Current assets - Current liabilities

Question 2

Current ratio

Answer 2

Current assets/Current liabilities

Measures the company’s liquidity

Question 3

Return on ordinary shareholder equity

Answer 3

(Net income - Preference dividends) / Average ordinary shareholders’ equity

Measures profitability from the shareholders’ viewpoint

Question 4

Gross profit

Answer 4

Sales revenue - COGS

Question 5

Net income (Loss)

Answer 5

Gross profit - operating expenses

Question 6

CO Available for sale

Answer 6

Beginning inventory + Cost of goods purchased

COGS + Ending inventory

Question 7

COGS

Answer 7

Beginning inventory + purchased - ending inventory

Question 8

Weighted average unit cost

Answer 8

CO Available for sale / Total units available for sale

Question 9

Net realised vale

Answer 9

Estimated selling price - estimated costs

Question 10

Inventory turnover

Answer 10

COGS / Average inventory

Question 11

Days inventory

Answer 11

365 / Inventory Turnover

Question 12

Account receivable turnover

Answer 12

Net credit sales / Average net accounts receivable

Measures short term liquidity

Question 13

Average collection period in days

Answer 13

365 / Account receivable turnover

Question 14

Straight line method

Answer 14

Cost - residual value = Depreciable cost

Depreciable cost / Useful life = Depreciation

Question 15

Units of activity method

Answer 15

Depreciable cost / Total units of activity = Depreciable cost per unit

Depreciable cost per unit x Units of activity during the year = Depreciation

Question 16

Profit margin

Answer 16

Net income / Net sales

Measures the percentage of each euro of sales that results in net income

Question 17

Asset turnover

Answer 17

Net sales / Average total assets

Question 18

Cash receipts from customers and Income taxes

Answer 18

Sales revenue

+ Decrease in AR
- Increase in AR

Income tax
+ Decrease in taxes
- Increase in taxes

Question 19

Cash payments to suppliers

Answer 19

COGS

+ Increase inventory
- Decrease inventory

+ Decrease accounts payable
- Increase accounts payable

Question 20

Cash payments for operating expenses

Answer 20

Operating expenses

+ Increase in prepaid expense
- Decrease in prepaid expense

+ Decrease in accrued expenses payable
- Increase in accrued expenses payable

Question 21

Acid test ratio or quick ratio

Answer 21

Quick assets / current liabilities

Measures short term liquidity

Question 22

Gain on disposal

Answer 22

Proceeds from Sale - Book value

Proceeds from sale is greater

(Loss on disposal –> book value is greater)