Ratios Flashcards
1
Q
How to calculate inventory turnover
A
Cost of Sales / Average Inventory
Ratio moves In the direction of cost of sales
When cost of sale increase gross profit margin will decease.
2
Q
Times interest earn
A
Measures income available to pay interest
Income before taxes / interest
3
Q
Account receivable turnover
A
How many times the company converts it s receivable to cash during the period.
Mgmt effectiveness in higher the ratio the better
Formula:
Credit sales / average receivables
Avg receivables (beg + end)/2
Total sales - cash sales = credit sales
