Financial ratios Flashcards
1
Q
What is Receivables turnover ratio
A
Measures the number of times that receivables are collected in a period
(Higher = better because receivables are more liquid)
2
Q
Receivables turnover ratio
A
Net credit sales/Average receivables
3
Q
What is the Collection period
A
Calculates the average number of days that accounts receivable are outstanding (Lower = better because should not exceed 30 days)
4
Q
Collection period
A
Days in year/Receivables turnover ratio
5
Q
What is the operating cycle
A
Calculates number of days to complete (Lower = better because you want to purchase your inventory quicker and easier)
6
Q
Operating cycle ratio
A
Days sales in inventory + Collection period
