Question

Glossary Review Please take this list and write the formulas used for these ratios and what the ratio is telling us or used for Accounts receivable turnover Asset turnover Available-for-sale securities Average collection period Change in accounting principle Comprehensive income Current ratio Days in inventory Debt to assets ratio Discontinued operations Earnings per share Free cash flow Gross profit rate Horizontal analysis Inventory turnover Leveraging Liquidity ratios

Answer 1

Some of the item on the lists are not ratios. They are 1. Available for sale securities, 2.Change in accounting principle, comprehensive income, 3.Discontinued operation, 4.Horizontal analysis, 5.Leveraging. So formulas of the same cannot be expressed. If you want a short description of each of these item, please comment on this answer.

Further I am sharing screenshot of my word file due to special characters in the document. If you want the text format of the document  feel free to comment the same.

Net Credit Sales 1. Accounts Receivable turnover Average Accounts Payable It is a measure of the effectiveness of the business in collecting its receivables. Higher the ratio, better the effectiveness of collecting receivables. 2. - Total Sales Asset Turnover Average Assets It is measure of the effectiveness of the business in using their assets to generate revenue. Higher the ratio, better the effectiveness. 365 3. Average collection period = Acco e Accounts receivable turnover It is a measure of days it took for the business to collect receivables for credit sales. Earlier the days better the performance. Current Assets 4. Current ratio Current Liabilities a It is a measure of liquidity of the business. It reflects business's ability to meet its current liability with its current assets. Higher the ratio better the ability. 365 5. Days in Inventory = 7 Inventory Turnover It is a measure of days required by the business to convert an inventory to sales. Lower the days better the business. - Total Debt 6. Debt to Asset Ratio = Totat It is a measure on degree to which a business has used debt to finance its assets. Higher the ratio, higher the degree of usage, hence higher financial risk.

Net Income-Preference dividend 7. Earnings per share Weighted average common sahres outstanding It is a measure of amount of net income earned per outstanding share. Higher the ratio, better the return. 8. Free Cash Flows = Net Operating profit after tax - Net investment in operating capital It is a measure of how much cash is left with the business for other purposes after its paid for capital expenditure. oto-Gross Profit 9. Gross Profit Rate == It is a measure of how much operating profit the business made on total sales. It shows how profitable the core business activities are. 10. Inventory Turnover = Cost of Goods sold Average Inventory It is a measure of how many times average inventory is turned or sold during a period. This shows how efficiently inventory is managed by the business.

11. Liquidity Ratios Quick Assets a) Quick Ratio Current Liabilities It is measure of liquidity of the business. It takes into account current assets that are in cash only. Cash+Marketable securities b) Absolute liquidity ratio = Ca. Current Liabilities It is measure of liquidity of the business. It takes into account current assets that are in cash and marketable securities. c) Current ratio - already explained above in point 4. Cash +Receivables+Marketable securities d) Basic defence ratio = - menace Operating expense + Interest +Taxes It is measure of liquidity of the business. It looks into the number of days a business can cover its operating expenses without help of additional financing.