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Class 1 - How long do you take to pay your suppliers...

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Ch. 4: Financial Ratios Financial ratios: o Used externally and by CFO to grade performance o To give ratios meaning: Compare them to competitors Compare to past performance Liquidity ratios: o Firm’s ability to pay off short term obligations o Current ratio (acid test): CA/ CL o Quick ratio: “Get rid of inventory” (CA – inv.)/ CL o Days in inventory: Inv./ (CGS/ 365) For # of days inventory remains unsold on firm’s shelves o Days receivable (average collection period): A/R/ (credit sales/ 365) For how long people are taking to pay us o Days payable:
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Unformatted text preview: How long do you take to pay your suppliers? A/P/ (CGS/ 365) o Financing gap: Receive $ (days inv. + days receivable) – pay $ (days payable) When firm grows, b/c of positive financing gap, they need to raise funds • Leverage ratios: o Firm’s ability to meet long term obligations o Times interest earned: EBIT/ int. exp. You want this to be at least 1 Ability of firm to repay/ service its debt o Debt ratio: Debt/ assets How much of your assets are funded by debt? o Long term debt/ equity: o...
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This note was uploaded on 06/11/2011 for the course BUSI 408 taught by Professor Croce during the Spring '08 term at UNC.

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Class 1 - How long do you take to pay your suppliers...

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