Chapter 3: Formulas Flashcards
(14 cards)
Current ratio
Current Assets / Current Liabilities
quick ratio
(Current Assets - Inventory) / Current Liabilities
Inventory turnover ratio
COS / Av Inventory
average inventory period
Av Inventory / COS * 365
average collection period
Av Tr / Credit Sales * 365
average payable period
Av TP / Credit Purchases or COS * 365
Sales revenue / net working capital ratio
Sales revenue / Net working capital
EOQ - Annual Holding Cost
Holding cost per unit × Average inventory
EOQ - Annual Order Cost
Order cost per order × no. of orders per year
EOQ - Total annual cost (TAC)
Annual order cost + Annual holding cost
total annual inventory cost with buffer stock
TAC = Co(D/Q) + Ch(B+Q/2)
Co = Cost of placing one order
D = Demand per annum
Ch = Cost of holding one unit for one year
Total annual cost (including the total purchase cost)
EOQ: TAC = Co(D/Q) + Ch(Q/2) + DP
(Where each unit costs $P)
Cash management models - Baumol model
This model is based on the same principles as the inventory EOQ model and identifies the optimal cash holding level.
Q = √(2FS/I)
F = Cost of obtaining funds
S = Amount of cash required per annum
I = Cost of holding $1 for one year
Cash management models - Baumol model
TAC
TAC = F(S/Q) + I(Q/2)
F = Cost of obtaining funds
S = Amount of cash required per annum
I = Cost of holding $1 for one year
