Financial Ratios: Understanding Liquidity, Asset Efficiency, and Profitability, Quizzes of Introduction to Business Management

Download Financial Ratios: Understanding Liquidity, Asset Efficiency, and Profitability and more Quizzes Introduction to Business Management in PDF only on Docsity! TERM 1 Financial Ratios DEFINITION 1 Accounting data restarted in relative terms in order to help people identify some of the financial strengths and weaknesses of a company. TERM 2 Liquidity DEFINITION 2 A firms ability to pay its bills on time. Liquidity is related to the ease and quickness with which a firm can convert its noncash assets into cash, as well as the size of the firms investment in noncash assets relative to its short-term liabilities. TERM 3 Current Ratio DEFINITION 3 A firms current assets divided by its current liabilities. This ratio indicates the firms degree of liquidity by comparing its current assets to its current liabilities. TERM 4 Acid-Test (quick) Ratio DEFINITION 4 A firms cash and accounts receivable divided by its current liabilities. This ratio is a more stringent measure of liquidity than the current ratio in that is excludes inventories and other current assets from current assets. TERM 5 Average Collection Period DEFINITION 5 A firms accounts receivable divided by the companys average daily credit sales (annual credit sales/365). This ratio expresses how rapidly the firm is collecting its credit accounts. TERM 6 Accounts Receivable Turnover Ratio DEFINITION 6 A firms credit sales divided by its accounts receivable. This ratio expresses how often accounts receivable are rolled over during a year. TERM 7 Inventory Turnover DEFINITION 7 A firms cost of goods sold divided by its inventory. This ratio measures the number of times a firms inventories are sold and replaced during the year, that is, the relative liquidity of the inventories. TERM 8 Operating Return on Assets (OROA) DEFINITION 8 The ratio of a firms operating income divided by its total assets. This ratio indicates the rate of return being earned on the firms assets. TERM 9 Operating Profit Margin DEFINITION 9 A firms operating income divided by sales. This ration serves as an overall measure of operating effectiveness. TERM 10 Total Asset Turnover DEFINITION 10 A firms sales divided by its total assets. This ratio is an overall measure of asset efficiency based on the relation between a firms sales and the total assets.