Ratios Flashcards
Current Ratio
Current Assets/ Current Liabilities
Quick Ratio
Quick Assets/Current Liabilities
Cash Ratio
Cash + Marketable Securities/ Current Liabilities
Cashflow Ratio
Operating Cashflow/Current liabilities
Working capital
Current Assets - Current liabilities
What does the current ratio measure?
Whether organization’s current assets can fulfill short term obligations
Quick Assets
Cash + Marketable Securities + AR
What do liquidity ratios measure?
Firm’s ability to meet current, short term liabilities
What do activity ratios measure?
Efficiency in which an organization employs its resources to generate revenue
AR turnover
Net Credit Sales/ Average AR
Day Sales in AR (AR collection period)
365/AR Turnover
Inventory turnover
COGS/Average Inventory
Days Sales in Inventory (Inventory Collection Period)
365/Inventory turnover ratio
AP Turnover
COGS/Average AP
Day Purchases in AP (AP deferral period)
365/AP Turnover ratio
Operating Cycle
AR Collection period + Inventory Conversion Period
Cash Cycle
Operating Cycle - AP Deferral Period
Total Asset Turnover
Net Sales/ Average Total Assets
Fixed Asset Turnover
Net Sales/Average Fixed assets
Working Capital Turnover Ratio
Net Sales/Average Working Capital
What does inventory turnover represent?
Amount of times inventory is sold or used in a period; measures business efficiency
higher is better
What does the inventory conversion period represent?
measures the number of days it takes to convert inventory into sales; lower is better because it implies inventory is selling quickly
What does AR turnover represent?
How efficient an organization is at collecting receivables
What does days in AR represent?
Average number of days an organization takes to collect AR
