Term
|
Definition
The ability of the firm to meet
its short-run obligations. |
|
|
Term
|
Definition
| The ability of the firm to control its investment in assets. |
|
|
Term
|
Definition
| The extent to which a firm relies on debt financing. |
|
|
Term
|
Definition
| The extent to which a firm is profitable. |
|
|
Term
|
Definition
| The value of the firm to potential or current investors. |
|
|
Term
|
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
|
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
|
Definition
| Total Current Assets - Inventory |
|
|
Term
|
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
|
|
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
|
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
|
Definition
Beginning Assets + Ending Assets
2
Is this correct? |
|
|
Term
|
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
|
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
|
Definition
Days in Period
Inventory Turnover |
|
|
