Liquidity ratios - measure the short-term ability of the entity to pay its maturing obligations and to meet unexpected needs for cash. Purpose of the ratio Ratio Current ratio Quick or Acid-test ratio Receivable turn- I over ratio Average collection period Inventory turnover ratio Ratio Analysis - Liquidity Ratios Number of days in inventory Formula Current assets Current liabilities Cash, Short-term investment, & net receivables Current liabilities Net Credit Sales Average trade receivables (AR) 365 days Receivable turnover ratio Cost of goods sold Average Inventory 365 days Inventory turnover ratio • Measures short-term debt paying ability The ratio expresses the relationship of current assets to current liabilities. It represents the amount of current assets available for every peso of current liability. • Measures immediate short-term liquidity. • The ratio represents the amount of quick assets available for every peso of current liability. • Measures liquidity of receivables. • The ratio measures the number of times, on average, receivables are collected during the period. • Measures the collection efficiency of the entity. The computed period indicates the average number of days before receivables are collected. • Measures liquidity of inventory. • The ratio measures the number of times, on average, inventory is sold during the period. • Measures the sales efficiency of the entity . The computed number of days indicates the length of time spent before inventories are sold to customers.
Liquidity ratios - measure the short-term ability of the entity to pay its maturing obligations and to meet unexpected needs for cash. Purpose of the ratio Ratio Current ratio Quick or Acid-test ratio Receivable turn- I over ratio Average collection period Inventory turnover ratio Ratio Analysis - Liquidity Ratios Number of days in inventory Formula Current assets Current liabilities Cash, Short-term investment, & net receivables Current liabilities Net Credit Sales Average trade receivables (AR) 365 days Receivable turnover ratio Cost of goods sold Average Inventory 365 days Inventory turnover ratio • Measures short-term debt paying ability The ratio expresses the relationship of current assets to current liabilities. It represents the amount of current assets available for every peso of current liability. • Measures immediate short-term liquidity. • The ratio represents the amount of quick assets available for every peso of current liability. • Measures liquidity of receivables. • The ratio measures the number of times, on average, receivables are collected during the period. • Measures the collection efficiency of the entity. The computed period indicates the average number of days before receivables are collected. • Measures liquidity of inventory. • The ratio measures the number of times, on average, inventory is sold during the period. • Measures the sales efficiency of the entity . The computed number of days indicates the length of time spent before inventories are sold to customers.
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter16: Financial Statement Analysis
Section: Chapter Questions
Problem 4E
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Question
Please provide the following:
• quick ratio
• inventory turnover
• account receivable
Important note: please follow the formula on the lesson attached (photo)
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