Week 8 IC Controls, financing Flashcards
What is the formula for Receivable Turnover?
Receivable turnover = Net credit sales (not net income) / Average AR
What is the usage of Receivable Turnover?
To quantify a company’s effectiveness in collecting its receivables or money owed by client.
What is AR turnover in days
Receivable turnover in days = 365 / receivable turnover ratio
What is the formula for inventory turnover?
Inventory turnover ratio = Cost of good sold / Average inventory (not ending inventory)
What is the formula for assets turnover ratio?
Asset turnover ratio = net sales / average total assets
What is the purpose of inventory turnover ratio?
efficiency ratio that shows how effectively inventory is managed by comparing cost of goods sold with average inventory for a period. This measures how many times average inventory is “turned” or sold during a period
What is debt to equity ratio?
Total liabilities / total shareholders equity
What is the purpose of debt to equity ratio?
It is to measure the company’s financial leverage, reflects ability of shareholders equity to cover outstanding debts
What is the formula gross margin?
Net sales - COGS / net sales
What is the differences between gross margin and profit margin?
gross margin only consider COGS since it measures the profitability of selling inventory. profit margin includes other expense
What is the ratio for return of equity?
net income / shareholders equity
What does the return of equity measures?
ROE is considered a measure of how effectively management is using a company’s assets to create profits. a %
