finance management

Quick Ratio Formula

(Current Assets - Inventory) / Current Liabilities

Crockett Electronics has a quick ratio of 2.00x, $33,525 in cash, $18,625 in accounts receivable, some inventory, total current assets of $74,500, and total current liabilities of $26,075. The company reported annual sales of $200,000 in the most recent annual report. Over the past year, how often did Crockett Electronics sell and replace its inventory?

8.95x InventoriesInventories = = Current Assets - (Quick Ratio × Current Liabilities)Current Assets - (Quick Ratio × Current Liabilities) = = $74,500 - (2.00 × $26,075)$74,500 - ⁡2.00 × $26,075 = = $22,350 InventoriesInventories = = Current Assets - (Cash + Accounts Receivable)Current Assets - (Cash + Accounts Receivable) = = $74,500 − ($33,525 + $18,625)$74,500 − ⁡$33,525 + $18,625 = = $22,350 Inventory Turnover RatioInventory Turnover Ratio = = $200,000/$22,350$200,000/$22,350 = = 8.95x8.95x

Companies have the opportunity to use varying amounts of different sources of financing, including internal and external sources, to acquire their assets, debt (borrowed) funds, and equity funds. Company A uses long-term debt to finance its assets, and company B uses capital generated from shareholders to finance its assets. Which company would be considered a financially leveraged firm?

Company A

Current Ratio Formula

Current Ratio = Current Assets / Current Liabilities

Red Snail Satellite Company has a total asset turnover ratio of 3.50x, net annual sales of $25 million, and operating expenses of $11 million (including depreciation and amortization). On its balance sheet and income statement, respectively, it reported total debt of $1.75 million on which it pays a 7% interest rate. To analyze a company's financial leverage situation, you need to measure the firm's debt management ratios. Based on the preceding information, what are the values for Red Snail Satellite's debt management ratios? Ratio Value Debt ratio

Debt Ratio: 24.51% Time interest earned ratio: 114.29x

TIE ratio formula

EBIT/Interest charges

Which of the following is true about the leveraging effect?

Interest on debt is a tax-deductible expense, which means that it can reduce a firm's taxable income and tax obligation.

ratios examine the market value of a company's share price, its profits and cash dividends, and the book value of the firm's assets and relate them to other data items to determine how the firm is perceived in the stock market.

Market value or market based

ratios help measure a company's ability to generate income and profits based on its invested capital.

Profitability

total asset turnover ratio formula

Sales/Total Assets

debt ratio formula

Total Debt / Total Assets =Total Debt / Total Debt & Equity

Ratios that help determine the efficiency with which a company manages its day-to-day tasks and assets are called

asset management or activity ratios.

A liquid asset can be converted to cash quickly without significantly impacting the asset's value. Which of the following asset classes is generally considered to be the most liquid?

cash

Ratios that help assess a company's ability to service the interest and repayment obligations on its long-term debt and the degree to which it uses borrowed versus invested financial capital are called

debt or financial leverage management ratios.

The US tax structure influences a firm's willingness to finance with debt. The tax structure _____ more debt

encourages

Ratios that help determine whether a company can access its cash and pay its short-term obligations are called

liquidity ratios.