ACCT 23020 Lecture Notes - Lecture 43: Financial Statement Analysis, Financial Statement, Quick Ratio

• School: Kent State University
• Department: Accounting
• Course: ACCT 23020
• Professor: Wendy M.Tietz

Document Summary

Measuring ability to pay current liabilities: working capital, current ratio, quick ratio. Quick (acid-test) ratio: quick ratio = (cash and cash equivalents + short- term investments + net current receivables) / Current liabilities: shows ability to pay all current liabilities if they come due immediately (quickly, narrower base to measure liquidity than current ratio, ratio of 0. 90 to 1. 00 is acceptable in most industries. Learning objective 4, part 2: use ratios to make business decisions: measuring turnover and the cash conversion cycle. Measuring turnover and the cash conversion cycle: inventory turnover, days" inventory outstanding (dio, accounts receivable turnover, days" sales outstanding (dso, accounts payable turnover, days" payable outstanding (dpo, cash conversion cycle. Days" inventory outstanding (dio: dio = 365 / turnover, converts inventory turnover ratio into days, wal-mart: 365 / 8. 26 = 44. 19, sears: 365 / 3. 82 = 95. 55. Accounts payable turnover: accounts payable turnover = cost of goods sold /