M8 Liquidity Ratios

Question 1

What do liquidity ratios measure

Answer 1

Measures the firm’s short-term ability to pay maturing obligations

Question 2

Current Ratio

Answer 2

Current Assets/Current Liabilities

Question 3

Quick ratio

Answer 3

(Cash and cash equivalents, receivables, short term marketable securities)/Current Liabilities

*excludes prepaids and inventory

Question 4

Accounts receivable turnover

Answer 4

Net Sales / Average accounts receivable (net)

*Net A/R include allowance accounts

Question 5

Days sales in accounts receivable

Answer 5

Ending A/R / Average daily Sales

Question 6

Inventory Turnover

Answer 6

Cogs/Average Inventory

Question 7

Days in Inventory

Answer 7

Ending Inventory / Avg daily COGS

Question 8

Accounts payable turnover

Answer 8

Cogs/Average accounts payable

Question 9

Days of payables outstanding

Answer 9

Ending A/P / Average daily COGS

Question 10

Average daily COGS

Answer 10

COGS / 365

Question 11

Cash conversion cycle

Answer 11

Days Sales in A/R + Days in Inventory - Days of payables outstanding

Question 12

Average daily sales

Answer 12

(Sales / 365)

Question 13

Asset Turnover

Answer 13

Net Sales / Average total assets