Final Working Cap Flashcards
Ratios (20 cards)
What is the formula for current ratio?
Current asset/ current liabilities
What does current ratio measure?
The current ratio is a liquidity and efficiency ratio that measures a firm’s ability to pay off its short-term liabilities with its current assets.
What is the formula for receivable turnover?
net sales/ average account receivable
What does receivable turnover measure?
The company effectiveness in collecting receivable
Key word: liquidity
What is the formula for inventory turnover ?
COGS/ average inventory
What does the inventory turnover measure?
the Inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year.
What is the average days in inventory turnover ratio?
365/inventory turnover
Why is it important to keep days in inventory low?
Otherwise, goods can become obsolete, broken, not good anymore
What is dept to total asset formula?
Total liabilities/ total assets
What does dept to total asset measure?
Total-debt-to-total-assets is a leverage ratio that defines the total amount of debt relative to assets.
What will we do?
Easily pass this exam
What is time interest earned formula ?
income before interest/ interest expense
What is the profit margin formula?
Net income/ net sales
What is gross profit formula?
Total Revenue - COGS/ total revenue
Why is profit margin important?
A profit margin is a ratio calculation which shows how much out of your overall sales the company actually keeps. The net profit shows the money that the business has held onto after expenses are deducted from gross profit
Why is gross profit margin important?
Gross margin is important because it shows whether your sales are sufficient to cover your costs of goods sold The gross profit ratio essentially shows the markup on the product or service you are selling.
Is a change in costing method from Fifo to average cost would have an impact on cash?
No impact on cash
Who is responsible for the freight cost when it is FOB destination?
The seller pays
Free on board (FOB)
Who is responsible for freight cost when it is Fob shipping point?
The buyer
How to improve inventory management?
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