Liquidity/Solvency & Operational Ratios

Question 1

Debt to Equity Ratio

Answer 1

Total Debt (liabilities) / Owners Equity

Question 2

Working Capital

Answer 2

Current assets - current liabilities

Question 3

Working capital ratio

Answer 3

Current assets / current liabilities

Current assets:
Increase = WCR increase
Decrease = WCR decrease

Current liabilities:
Increase = WCR decrease
Decrease = WCR increase

Question 4

Acid-test ratio (aka Quick Ratio)

Answer 4

(Cash + net receivables + marketable securities) / current liabilities

This is the number of times that cash can be converted quickly to cash to cover current liabilities.

Question 5

Securities defensive-interval ratios

Answer 5

(Cash + net receivables + marketable securities) / average daily cash expenditures

Question 6

Times interest earned ratios

Answer 6

(Net income + interest expense + income tax) / interest expense

Question 7

Times preferred dividend earned ratio

Answer 7

Net income / annual preferred dividend obligation

Question 8

AR Turnover

Answer 8

Net credit sales / average net accounts receivables (e.g. Beg + end / 2)

Measures the # of times that ar Turnover are incurred and collected during a period.

Question 9

days in avg receivables

Answer 9

365 / AR Turnover

Measures the avg # days required to collect receivables.

Question 10

Inventory turnover

Answer 10

COGS / avg inventory

COGS = beg inventory + purchases - end inventory

Measures the avg days to collect ar

Question 11

of days supply in inventory

Answer 11

365 / inventory turnover

Question 12

Operating # of Cycle

Answer 12

of days sales in AR + length of cycle # of days supply in inventory