j401 quiz 1 accounting

  1. Liquidity ratios- can the firm meet its maturing obligations as the come due
    • Current Ratio- measures solvency by showing the firm's ability to pay current liabilities out of current assets
    • Quick Ratio- Shows the extent to which a firm's most liquid assets cover its current liabilities
    • Net Working Capital- an expression of how much in liquid assets a firm currently has
  2. Current ratio
    = current assets/ current liabilities
  3. Quick Ratio
    (current assets- inventory)/ current liabilities
  4. Net Working Capital
    current assets-current liabilities
  5. Capital structure ratios- Can the firm repay loans (vulnerability to risk)
    • Debt to Equity- ratio of capital invested by owners vs funds provided by lenders
    • Debt to Assets- shows how well a firm can cover total debt with all assets
    • Current Debt to Total Debt- shows what proportion of the firm's total debt is current
  6. Debt to Equity
    total liabilities/stockholder's equity
  7. Debt to Assets
    total liabilities/total assets
  8. Current Debt to Total Debt
    Current liabilities/ total liabilities
  9. Performance Ratios- How well is the firm performing on (some) standard financial metric
    • Gross Profit Margin- how much profit is earned on product without selling and administration cost.
    • COGS- percentage of sales uesed to pay expenses which vary directly with sales
    • Net Profit- profit comes from every dollar of sale
    • ROA- how effective assets are used to generate a return
    • ROE- determines the rate of return on stockholder's investment
  10. Gross Profit Margin
    Gross profit/ sales
  11. COGS to Sales
    COGS/ sales
  12. Net Profit of sale
    net profit/ sales
  13. ROA
    net profit/ total assets
  14. ROE (RR net worth)
    net profit/ SE
  15. Activity Ratios- how efficiently is the firm operating
    • Inventory turn- number of times inventory turnover during the year
    • inventory days- average number of day to sell inventory
    • A/R turn- number of times that accounts receivables turnover during the year
    • A/R day- turnover in days
    • FAX- how efficiently the business generates sales in each dollar of fixed assets
    • TaX- business generates sales on each dollar of assets
  16. Inv turn
    Inv Days
    • Inv turn= COGS/Inv
    • Inv days=365/ Inv. turn
  17. A/R turn
    A/R days
    • A/R turn= sales/ AR
    • A/R days= 365/AR turn
  18. FAX
    • FAX= sale/NFA
    • TAX=sales/total assets
Card Set
j401 quiz 1 accounting