Exam II Material Flashcards
What is a Liquidity Ratio?
This measures a company’s capacity to pay its debts as they come due. There are only two liquidity ratios.
Define a current ratio.
gauges how able a business is to pay current liabilities by using current assets only.
How do you find current ratio?
Total Current Assets/Total current liabilities
Define quick ratio.
Indicates the extent to which you could pay current liabilities without relying on the sale of inventory.
How do you find quick ratio?
Cash+Accounts Receivable+any quick assets/Current Liabilities
What are quick assets?
everything that is not inventory or classified under inventory.
What are safety ratios?
Indicates a company’s vulnerability to risk–the degree of protection provide for the business debt.
What are profitability ratios?
The company’s ability to generate a return on its resources .
What are efficiency ratios?
Evaluates how well the company manages its assets.
Define accounts receivable turnover.
The number of times accounts receivable are paid and reestablished during the accounting period.
How to you find accounts receivable turnover?
Total net sales(Revenue)/Average accounts receivable
Define accounts receivable collection period.
Reveals how many days it takes to collect all accounts receivable.
How do you fine accounts receivable collection period?
365 Days/Accounts receivable
How do you find accounts receivable turnover?
Sales of that year/the average of sales that year minus the average of sales the previous year.
Define Inventory Turnover.
Shows how many times in one accounting period the company turns over (sells) its inventory. How many times you buy something sell it then buy it again.
