Liquidity/Solvency and Operational Ratios

Question 1

Liquidity/Solvency Definition

Answer 1

Measures the ability to meet maturing obligations

Question 2

Operational Definition

Answer 2

Measures the efficiency of operations

Question 3

Profitability Definition

Answer 3

Measures operational results

Question 4

Equity Definition

Answer 4

Measures sources of equity

Question 5

Liquidity/Solvency Ratios

Answer 5

1. Working Capital
2. Current Ratio
3. Acid (or Quick) Ratio
4. Times Interest Earned

Question 6

Operational Ratios

Answer 6

1. Accounts Receivable (AR) Turnover
2. # of Days in AR
3. Inventory Turnover
4. # of Days in Inventory

Question 7

Working Capital

Answer 7

Current Assets (CA) - Current Liabilities (CL)

Question 8

Current Ratio

Answer 8

Current Assets/Current Liabilities

Question 9

Acid (or Quick) Ratio

Answer 9

(Cash + Net AR + Marketable Securities)/Current Liabilities

Will always be less than Current Ratio because numerator is smaller

Question 10

Times Interest Earned Ratio

Answer 10

(NI + Interest Expense + Income Tax Expense)/Interest Expense

Question 11

Accounts Receivable Turnover

Answer 11

Net credit sales/Average AR

Question 12

Number of Days in Accounts Receivable (AR)

Answer 12

365/AR Turnover

Question 13

Inventory Turnover

Answer 13

COGS/Average Inventory

Question 14

Number of Days in Inventory

Answer 14

365/Inventory Turnover