Details Title: Chapter 3 Description: FI 311 Exam 1 Total Flash Cards: 22 Created: 09/29/2009 22:29:37		New Users: To study from this flashcard set, or to create your own your own study flash cards, REGISTER HERE. Existing Users: CLICK HERE. Additional Finance Flashcards
Cards in this set: Term Short-Term Solvency Definition The ability of the firm to meet its short-run obligations.   Term Activity Definition The ability of the firm to control its investment in assets.  Term Financial Leverage Definition The extent to which a firm relies on debt financing. Term Profitability Definition The extent to which a firm is profitable.  Term Value Definition The value of the firm to potential or current investors.  Term When computing ratios... Definition ...use end of year data. or ...use average figures.  Term What are the most widely used measures of liquidity? Definition The current ratio and the quick ratio.  Term Current Ratio Definition Total Current Assets Total Current Liabilities Term Banker's Rule for Current Ratio Definition The current ratio is appealing if it greater than 2.  Term Quick Assets Definition Total Current Assets - Inventory Term Quick Ratio Definition Quick Assets* Total Current Liabilities   *Quick Assets = Total CA - Inventory  Term Banker's Rule for Quick Ratio Definition A quick ratio of 1 is appealing. Term What is normal length of "trends"?  Definition 3 - 5 Years Term A big drop from the current ratio to the quick ratio often signifies a problem with what account? Definition Inventory.  This is obvious because the only difference between the two ratios is the inventory account.   Term What do ratios of ACTIVITY measure? Definition Ratios of activity are constructed to measure how effectively the firm's assets are being managed.  Term Total Asset Turnover Definition Total Operating Revenues Average Total Assets    Note:  A larger number is more appealing. Bigger is better because this number identifies how many times you turn an asset into a sales dollar. Term Average Total Assets Definition Beginning Assets + Ending Assets 2   Is this correct? Term Receivables Turnover Definition Total Operating Revenues Average Receivables   Note:  We only learn this ratio because it is vital to the ACP. Term Average Collection Period (ACP) Definition Days in Period Receivables Turnover   Note:  Compare your results to the industry's norm.   Term Inventory Turnover Definition Cost of Goods Sold Average Inventory   Note:  This ratio is used to calculate shelf life. Term What is another phrase for "Days in Inventory"? Definition Days in Inventory = Shelf Life Term Days in Inventory Definition Days in Period Inventory Turnover