Information about the ratios Flashcards
What does the Working Capital measure?
A business’s ability to meet its short-term
obligations with its current assets
What does the Current Ratio measure?
The company’s ability to pay current
liabilities from current assets.
What does the Cash Ratio measure?
The company’s ability to pay current liabilities from cash and cash equivalents.
What does the acid-test ratio measure?
The company’s ability to pay all its current liabilities if they came due immediately
What does the Inventory turnover measure?
The number of times a company sells its average level of merchandise inventory during a period
What does the Days’ sales in inventory measure?
The average number of days that inventory is held by a company
What does the Gross profit percentage measure?
The profitability of each sales dollar above the cost of goods sold.
What does the Accounts Receivables Turnover Ratio measures?
The number of times the company collects the average receivables balance in a year.
What does the Days’ Sales in receivables measure?
The number of days sales it takes to collet the average level of receivables.
What does the Debt-Ratio measure?
The proportion of assets financed by debt.
What does the debt to equity measures?
The proportion of total liabilities relative to total equity
What does the Times-Interest-earned ratio measure?
A business’s ability to pay interest expense.
What does the profit margin ratio measures?
How much net income is earned on every dollar of sales.
What does the Rate of return on assets measure?
The success a company has in using assets to earn income.
What does the assets turnover ratio measure?
How efficiently a business uses its average total assets to generate sales.
