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3 Cards in this Set
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Explain Liquidity Ratio. |
Liquidity Ratio is the ability of a firm to pay off its debts when they are due is called liquidity. Liquidity is measured by the following ratios: 1. Current or Working Capital Ratio = Current Assets ÷ Current Liabilities 2. Liquid/Quick/Acid Test Ratio = Liquid Assets ÷ Current Liabilities Liquid/Quick/Acid Test ratio measures the ability of a firm to pay of its immediate debts. |
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Explain Efficiency Ratios. |
1. Rate of Stock Turnover: This refers to the number of times average stock gets replaced during the year. The formula is: Cost of Goods Sold ÷ Average Stock It can also be a liquidity ratio since the firm is in a better position to pay off its debts if it is able to sell its stock faster than other similar business.
2. Debtors Collection Period: It is also called the debtors to sales ratio. This ratio calculates the number of days taken by the firm to collect dues from it's trade debtors. It is given by the formula: (Debtors ÷ Credit Sales) × 12 Months or 52 Weeks or 365 Days. |
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Explain Profitability Ratios: |
1. Gross Profit Margin: This is also called gross |
