Profitability Ratios
Profitability ratio definition
What is the measure of the ability of a firm to pay off it's short-term debt
Liquidity ratio definition
What is a ratio that measures the ability of a firm to pay off short-term debt
Current Ratio Definition
What is a comparison of a firm's current assets to its current liabilities
Another name for an acid test ratio
What is a quick ratio
Profitability/Liquidity ratio analysis
What is a management tool of analyzing and judging the financial performance of a business
Gross profit margin formula
What is (gross profit/sales revenue) x 100
Names of the two liquidity ratios
What is a current ratio and an acid test ratio
What can high current ratio's mean (3)
What is...
- Too much cash being held and not invested
- Too many debtors, increasing bad debts
- Too much stock is being held, high warehouse storage costs
An acid test ratio less than 1:1 means
What is an un-sound business that cannot pay short term debt
Purpose of ratio analysis (part 1)
What is analyzing the firms position and assessing financial performance
3 ways to improve profitability ratio
What is...
- Raising sales revenue
- Increase or decrease prices
- Marketing
What do liquid assets include
What is cash, stock, and debtors who can't be turned into cash
How to improve current ratio
What is reducing bank overdrafts and seeking long-term loans or selling existing assets for cash
How to improve acid test ratio
What is...
- Selling off stock for a discount
- Increase credit period for debtors to purchase more stock
Purpose of ratio analysis (part 2)
What is comparing actual with projected figures and aid in decision making
Larger differences between GPM and NPM means...
What is a more difficult overhead control
A company has current assets of $120,000 and current liabilities of $80,000. Calculate the Current Ratio.
What is 1.5.
Current Ratio formula
What is current assets/current liabilities
Acid test ratio
What is current assets-stock/current liabilities
Ratio comparison can be
What is historical comparison or inter-firm comparison
A company has total sales of $500,000 and the cost of goods sold (COGS) is $300,000. Calculate what the Gross Profit Margin would be
What is 40%
A company has current assets of $150,000, inventory of $50,000, and current liabilities of $100,000. Calculate the Quick Ratio.
What is 1.0
A company has current assets of $250,000 and current liabilities of $150,000. Calculate the Current Ratio.
What is 1.67
A company has current assets of $180,000, inventory of $50,000, and current liabilities of $90,000. Calculate the Acid-Test Ratio.
What is approximately 1.44.
A company has total sales of $800,000, cost of goods sold (COGS) of $500,000, and net income of $70,000. Calculate the Gross Profit Margin and the Net Profit Margin.
What is The Gross Profit Margin is 37.5%, and the Net Profit Margin is 8.75%.