ratio analysis Flashcards
what do liquidity ratios measure?
the company’s ability to pay off short term obligations
formula for working capital ratio
current assets / current liabilities
formula for quick ratio
cash + cash equivalents + short term securities + net AR / current liabilities
what do times interest earned ratios measure?
how many times interest expense can be paid with current earnings
formula for inventory turnover ratio
cogs / average inventory
formula for days in inventory ratio
ending inventory / cogs/365
what does the days in inventory ratio measure?
how many days does inventory sit on the shelf?
what does AR turnover measure?
the amount of times AR is collected throughout the year
formula for AR turnover
net credit sales / average AR
what does days in AR measure?
how many days AR is outstanding
formula for days in AR
ending AR / sales/365
what does the operating cycle measure?
the time it takes to convert inventory into sales and the same receivables into cash
formula for operating cycle
days in inventory + AR turnover
formula for AP turnover
cogs / average AP
relationship between beginning inventory and cogs?
direct
relationship between ending inventory and cogs?
inverse
relationship between ending inventory and gross profit?
direct
what relevant information is needed to find the lower of cost or NRV?
original cost
cost to dispose
selling price
how do you value inventory that is no longer expecting a profit for:
LIFO
FIFO
lower of cost or market
lower of cost or NRV
