Ratios- Liquidity/ Solvency and Operational

Question 1

Name 5 Asset measurement ratios

Answer 1

ROA ( Return on Asset

PM (Profit Margin)

TAT (Total Asset Turnover )

EP ( Expense Percentage)

AT ( Asset Turnover)

Question 2

ROA

Answer 2

1) Return on Asset

= NI/ Avg Total Asset

Question 3

PM

Answer 3

1) Profit Margin

= NI / Sales

Question 4

TAT

Answer 4

1) Total Asset Turnover

= Sales / Avg Total Assets

Question 5

EP

Answer 5

1) Expense Percentage

= Various Expenses/ Sales

Question 6

Name 2 ST Liquidity Ratios

Answer 6

1) Current Ratio

2) Quick Ratio

Question 7

Name 3 LT Solvency

Answer 7

1) Debt / Equity
2) Interest
3) Coverage

Question 8

Name 2 Equity ratios

Answer 8

1) ROE

2) Leverage

Question 9

ROE

Answer 9

1) Return on Equity

= NI/ Avg Shareholder’s equity

Question 10

Leverage

Answer 10

= Avg Total Asset / Avg S/H Equity

Question 11

Name 2 Major Liquidity Measures

Answer 11

1) Working Capital

2) Working Capital Ratio ( also known as “Current Ratio”

Question 12

WC

Answer 12

1) Working Capital

= CA - CL

Question 13

WCR

Answer 13

1) Working Capital Ratio

= CA/ CL

Question 14

Name 4 types of liquidity ratios

Answer 14

1) Acid Test Ratio
2) Securities Defensive-Interval Ratio
3) Times Interest Earned Ratio
4) Times Preferred Dividend Earned Ratio

Question 15

ATR

Answer 15

1) Also known as Quick Ratio
2) Acid Test Ratio
3) measures the quantitative relationship between highly liquid assets and current liabilities in terms of the “number of times“ that cash and assets that can be converted quickly to cash cover current liabilities.

= ( Cash + (Net) Receivables + Marketable Securities / CL

Question 16

SDIR

Answer 16

1) Securities Defensive-Interval Ratio
2) measures the quantitative relationship between highly liquid assets and the average daily use of cash in terms of the number of days that cash and assets can be quickly converted to support operating costs.

= ( Cash + (Net) Receivables + Marketable Securities / Avg Daily Cash Expenditures

Question 17

TIER

Answer 17

1) Times Interest Earned Ratio
2) measures the ability of current earnings to cover interest payments for a period.

= ( NI + Interest Expense + Income Taxes)/ Interest Expense

Question 18

TPDER

Answer 18

1) Times Preferred Dividend Earned Ratio
2) measures the ability of current earnings to cover preferred dividends for a period.

= NI / Annual Preferred Dividend Obligation

Question 19

Names 5 Operational Activity Ratios

Answer 19

1) Accounts Receivable Turnover
2) Number of Days’ Sales in Average Receivables
3) Inventory Turnover
4) Number of Days’ Supply in Inventory
5) Operating Number of Cycle

Question 20

ART

Answer 20

1) Accounts Receivable Turnover
2) measures the number of times that accounts receivable turnover (are incurred and collected) during a period. Indicates the quality of credit policies (and the resulting receivables) and the efficiency of collection procedures.

= (Net) Credit Sales / Average ( Net) Accounts Receivable

Question 21

NODSIAR

Answer 21

1) Number of Days’ Sales In Average Receivables
2) measures the average number of days required to collect receivables; it is a measure of the average age or receivables.

= ( measurement of business days or year ) / ART

Question 22

IT

Answer 22

1) Inventory Turnover
2) measures the number of times that inventory turnover (is acquired and sold or used) during a period. Indicates over or under stocking of inventory or obsolete inventory.

= COGS / Avg Inventory

Question 23

NODSII

Answer 23

1) Number of Days Supply in Inventory
2) measures the number of days inventory is held before it is sold or used. Indicates the efficiency of general inventory management.

= ( measurement of business days or year ) / IT

Question 24

ONOC

Answer 24

1) Operating Number of Cycle
2) measures the average length of time to invest cash in inventory, convert the inventory to receivables, and collect the receivables; it measures the time to go from cash back to cash.

= Number of Days’ Sale in A/R + Length Cycle Number of Days’ Supply in Inventory