Liquidity Flashcards
Current ratio
Current Assets1/Current Liabilities1
how many times/whether a firm is able to pay off its short term liabilities with its current assets
benchmark >2
Quick Ratio /Acid test
(Current assets1 - Inventory1)/Current Liabilities1
How well a company can quickly convert its assets into cash to pay off its current liabilities
benchmark>1
Cash Availability
(Cash and cash equivalents1 - Marketable securities1)/Current Liabilities1
how many times/whether a firm is able to pay off its current liabilities with cash and cash equivalents
Cash conversion cycle (CCC)
CCC= Inventory Days + Debtor Days - Creditor days
how long cash is tied up in inventory before the inventory is sold and cash is collected from customers
- how long it takes to sell the inventory
- how long it takes to collect cash from these sales
- how long it takes to pay off the vendors
benchmark: industry-specific
Inventory days = (Average inventory/COGS1) * 365
Debtor days = (Average Receivables/Sales1)*365
Creditor days = (Average payables/Purchases1) * 365
Purchases = Closing Inventory - Opening Inventory + COGS
Inventory days
(Average Inventory/COGS1)*365
(1/Inventory Turnover)*365
how long it takes to sell the inventory
Debtor days
(Average receivables/Sales1)*365
(1/Receivables Turnover)*365
how long it takes to collect money from customers
Creditor days
(Average payables/Purchases1)*365
Purchases = Cl. inv. - Op. Inv. + COGS
(1/Payables Turnover)*365
How long it take to pay off the vendors (our suppliers)
how are average values calculated?
(Opening balance+Closing balance)/2
Purchases
Closing Inventory - Opening Inventory + COGS
