Liquidity And efficiency (Ratios) Flashcards
1
Q
Current ratio
A
Current liablities
Example = 1.18 : 1 (enough assets to cover debt)
2
Q
Liquid capital ratio
A
(Current assets – inventory)
—————————————–
Current liabilities
Example = 1.2 : 1 (enough assets to cover debt)
3
Q
Trade recievables days
A
Trade receivables
—————————— x 356
Credit sales
Example = 19 days
4
Q
Trade payable days
A
Trade payables
———————– x 365
Credir purchases
Example = 54 days
5
Q
Inventory turnover
A
Average inventory
————————— x 365
Cost of sales
Exampe = 65 days
6
Q
Limitations of ratios
A
Highlight problems doesnt show soloutions for them
Ratios are averages , doesnt highlight one part of the business might be poor
