5 Current Ratio Current AssetsCurrent Liabilities If Current Assets and Current

# 5 current ratio current assetscurrent liabilities if

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• LAW 807
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(5.) Current Ratio = Current Assets/Current Liabilities If Current Assets and Current Ratio is known, Current Liabilities = Current Assets/Current Ratio If Current Liabilities and Current Ratio is known, Current Assets = Current Liabilities X Current Ratio 250000/69500 = 3.6 250000/3.6 = 69500 69500 X 3.6 = 250000 Used to measure a company’s ability to service the liabilities. 3.6 is a good value but cab be improved by lowering the value of the liabilities or increasing the assets. (6.) Working Capital = Current Assets – Current Liabilities 250000 – 69500 = 190500 (7.) Non-cash Working Capital = (Accounts Receivable + Inventory) – Current Liabilities 110000+125000- 69500=165000 Income Statement and Balance Sheet . . (8.) Working Capital Turnover = Sales/Working Capital 1000000/190500 = 5.25 This is the amount of money a company uses to run its everyday business. The value given in this case is quite good ©William G. Donohoo 7/28/2014
4 If Working Capital and Working Capital Turnover are known, Sales = Working Capital X Working Capital Turnover If Sales and Working Capital Turnover are known, Working Capital = Sales/Working Capital Turnover 190500 X 5.25 = 1000000 1000000/5.25 = 190500 and can be improved by increasing the assets. (9.) Asset Turnover = Sales / Assets If Sales and Asset Turnover are known, Assets = Sales/Asset turnover If Assets and Asset Turnover are known, Sales = Assets X Asset Turnover 1000000/385000 = 2.6 1000000/2.6 = 385000 385000 X 2.6 = 1000000 It is the efficiency of a company’s assets in producing sales. Can be used to calculate the sales or assets of a company. The value given is good but could be improved by increasing the sales. (10.) Days Cash Usage on Hand = Cash/(Sales/365) 25000/(1000000/365) = 9.13 Estimation of the number of days a company can run with the cash at hand currently. The value is good. (11.) (DSO) Accounts Receivable Days Outstanding = Accounts Receivable/(Sales/365) If Accounts Receivable and Accounts Receivable Days Outstanding are known, Sales = Accounts Receivable/Accounts Receivable Days Outstanding X 365 If Sales and Accounts Receivable Days Outstanding are known, Accounts Receivable = Sales/365 X Accounts Receivable Days Outstanding 110000/(1000000/365) = 40.15 110000/40.15 X 365 = 1000000 1000000/365 X 40.15 = 110000 This is the number of days a company takes to get all the account receivables. The value is bad. Can be improved by effective correction of credits. (12.) Inventory Turnover = Cost of Goods Sold/Inventory If Inventory and Inventory Turnover are known, Cost of Goods Sold = Inventory X Inventory Turnover If Cost of Goods Sold and Inventory Turnover are known, Inventory = Cost of Goods Sold/Inventory Turnover (DIO) Inventory Days on Hand = Inventory/(Cost of 550000/125000 = 4.4 125000 X 4.4 = 550000 550000/4.4 = 125000 110000/(550000/365) This is the number of days that a stock takes to be fully sold out. The value is good but can be improved by promoting the sales.

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