Ratios Flashcards
Acid Test Ratio (Quick Ratio)
(Cash + Net Receivables + Marketable securities) / current liabilities
Defensive Interval Ratio
(Cash + Net Receivable + Marketable Securities) / Average Daily Cash Expenditures
Average Collection Period
(Days in Year × Average Accounts Receivable) / Credit Sale for Period
Times Interest Earned
(Net Income + Interest Expense + Income Tax Expense) / Interest Expense
Times Preferred Dividends Earned Ratio
Net Income / Annual Preferred Dividend Obligation
What do liquidity (solvency) ratios measure
assess the ability of a firm to pay their obligations as they become due
Payables Deferral Period
average length of time between the purchase of materials and the payment of cash for them.
what is the Operating Cycle
reflects how long it takes for the entity to go from the acquisition of inventory to the collection of cash on accounts receivables from sale of that inventory.
A/R Turnover
(Net) Credit Sales/Average (Net )AR
Number of Days’ Sales in Average Receivables
300 or 360 or 365 (or other measure of business days in a year) / Accounts Receivable Turnover (computed in A, above)
Inventory Turnover
Cost of Goods Sold/Average Inventory
Number of Days’ Supply in Inventory
300 or 360 or 365 (or other measure of business days in a year) / Inventory Turnover
Accounts Payable Turnover
Credit Purchases/Average Accounts Payable
Number of Days’ Purchases in Average Payables
300 or 360 or 365 (or other measure of business days in a year) / Accounts Payable Turnover
Capital Turnover
Annual Sales (or Revenue) / Average Owners’ Equity
