Module 7.1

# Module 7.1 - Liquidity Ratios Current Ratio For current...

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Liquidity Ratios Current Ratio For current ratio you take Total Current Assets and Divide it by Total Current Liabilities Total Current Assets/ Total Current Liabilities

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Amount of Working Capital Current Assets-Current Liabilities Current Assets are: Accounts receivable, Cash, and inventory Current Liabilities are: Accounts Payable, Notes Payable, and Accrued Liabilities Receivables Turnover Ratio and Average Collection Period Receivables Turnover Ratio Take the sales that are credit accounts or (all on credit) To get the average amount of accounts receivable you add the first and second year then divide by 2. You then take your credit sales and divide them by your average accounts receivable Credit Sales / Average Accounts Receivable Average Collection Period For the average collection period you take number of days (in this case it was 365) and you divide that by the Account Receivable Turnover. You round your Account Receivable Turnover to one number after the decimal point so: 00.0. 365 (number of days in the year)/ Account Receivable Turnover 365/00.0
Inventory Turnover and Days in Inventory Inventory Turnover Identify the cost of goods sold To get the average amount of Inventory you add the first and second year then divide by 2. Costs of goods sold/Inventory Days in Inventory To calculate the Days in Inventory you take the number of days in a year and divide that by the Inventory Turnover Be sure to have only two numbers after the decimal places 365/Inventory Turnover

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Module 7.1 - Liquidity Ratios Current Ratio For current...

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