Concept explainers
The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year, or within completion of the operating cycle, is referred to as current ratio. This ratio assesses the liquidity of a company.
Formula of current ratio:
Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the net credit sales by the average amount of net accounts receivables. In other words, it indicates the number of times the average amount of net accounts receivables collected during a particular period.
Formula of current ratio:
Average collection period:
Average collection period indicates the number of days taken by a business, to collect its outstanding amount of accounts receivable on an average.
Formula of average collection period:
To indicate: whether each transaction will increase (I), decrease (D), or have no effect (NE) for the given ratios.
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FINANCIAL ACCOUNTING>IC<
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