Module 3: Working Capital Metrics

Question 1

Quick Ratio Formula (Current ratio)

Answer 1

Current ratio = CA/CL

Question 2

Quick (Acid Test) Ratio

Answer 2

Cash + Marketable Securities + Receivables/ Current Liabilities

Question 3

Cash conversion cycle (Net operating cycle) formula

Answer 3

= Inventory conversion period (# days to sell) + receivables collection period ( # days to collect) - payables deferral period [# days to repay (stretch it out)]

Question 4

Inventory turnover formula

Answer 4

= COSG/AVG inventory

Question 5

Inventory conversion period formula

Answer 5

= 365/Inventory turnover

Question 6

Accounts receivable turnover formula

Answer 6

= Credit sales/Average accounts receivable

Question 7

Receivables collection period = Day sales outstanding (DS)) formula

Answer 7

= 365/accounts receivable turnover

Question 8

Accounts payable turnover formula

Answer 8

=COSG/Avg account payable

Question 9

Accounts payable deferral period

Answer 9

= 365/Accounts payable turnover

Question 10

Working capital turnover formula

Answer 10

= Sales/Average working capital

Question 11

Working capital

Answer 11

= CA- CL