ACCT 1209 Lecture Notes - Lecture 6: Asset, Quick Ratio, Current Liability

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redmanatee539

16 Dec 2016

School

Northeastern University

Department

Accounting

Course

ACCT 1209

Professor

Ganesh Krishnamoorthy

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Current = Current assets

Ratio Current liabilities

Current Ratio: A liquidity ratio that measures a company's ability to pay short-term obligations. The

higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1

suggests that the company would be unable to pay off its obligations if they came due at that point.

Quick Ratio = Quick Assets (cash, marketable securities, and accounts receivable)

Current Liabilities

Quick Ratio: measures a company’s ability to meet its short-term obligations with its most liquid

assets. The quick ratio measures the dollar amount of liquid assets available for each dollar of current

liabilities. Thus, a quick ratio of 1.5 means that a company has $1.50 of liquid assets available to

cover each $1 of current liabilities.

Gross Profit = Gross Profit (Net sales – COGS)

Margin % Net Sales (or operating revenues)

Gross Profit: A financial metric used to assess a firm's financial health by revealing the proportion of

money left over from revenues after accounting for the cost of goods sold.

Net Profit = Net income

Margin % Net Sales (or operating revenues)

Net Profit Margin: Measures how much of every sales dollar is profit

Debt-to-Equity = Total Liabilities

Stockholders’ Equity

Debt-to-Equity ratio: indicates what proportion of equity and debt the company is using to finance its

assets

Return on = Net income – Preferred Dividends

Equity Stockholder’s Equity

Return on Equity: measures a corporation's profitability by revealing how much profit a company

generates with the money shareholders have invested, or the amount of net income returned as a

percentage of shareholders equity.

Return On = Net income

Assets (ROA) Average total assets

Return On Assets (ROA): An indicator of how profitable a company is relative to its total assets.

ROA gives an idea as to how efficient management is at using its assets to generate earnings.

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Document Summary

Current ratio: a liquidity ratio that measures a company"s ability to pay short-term obligations. The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. Quick ratio = quick assets (cash, marketable securities, and accounts receivable) Quick ratio: measures a company"s ability to meet its short-term obligations with its most liquid assets. The quick ratio measures the dollar amount of liquid assets available for each dollar of current liabilities. Thus, a quick ratio of 1. 5 means that a company has . 50 of liquid assets available to cover each of current liabilities. Gross profit = gross profit (net sales cogs) Gross profit: a financial metric used to assess a firm"s financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold.

Related Questions

Sherwood, Inc., the parent company of Tasty snack foods andSuper beverages, had the following current assets and currentliabilities at the end of two recent years:

	Current Year (in millions)	Previous Year (in millions)
Cash and cash equivalents	$3,524	$3,810
Short-term investments, at cost	2,503	7,076
Accounts and notes receivable, net	7,957	7,258
Inventories	1,656	736
Prepaid expenses and other current assets	552	272
Short-term obligations	294	3,125
Accounts payable and other current liabilities	6,970	6,370
Income taxes payable	96	585

a. Determine the (1) current ratio and (2)quick ratio for both years. Round to one decimal place.

	Current Year	Previous Year
1. Current ratio
2. Quick ratio

b. The solvency of Sherwood has__increase ordecrease____ some over this time period. Both the current and quickratios have_increase or decrease_____ . Sherwood is a_strong orweak____ company with__ample or insufficient____ resources formeeting short-term obligations. Its solvency as measured by thecurrent and quick ratios has__improved or detoriated____ duringthis period.

Sherwood, Inc., the parent company of Tasty snack foods and Super beverages, had the following current assets and current liabilities at the end of two recent years:

	Current Year (in millions)	Previous Year (in millions)
Cash and cash equivalents	$1,724	$1,749
Short-term investments, at cost	1,224	3,248
Accounts and notes receivable, net	3,892	3,331
Inventories	2,280	2,280
Prepaid expenses and other current assets	760	843
Short-term obligations	304	3,227
Accounts payable and other current liabilities	7,197	6,579
Income taxes payable	99	604

a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place.

	Current Year	Previous Year
1. Current ratio
2. Quick ratio

champagnemosquito57

1. The formula for Accounts Receivable turnover is

Select one:

a. Net Sales / average accounts receivable

b. Cost of goods sold / average accounts receivable

c. Net Sales / average merchandise inventory

d. 360 days / average accounts receivable

2. The category of ratios that determine the economic status ofpublicly-traded companies is

Select one:

a. Profitability ratios

b. Market value ratios

c. Liquidity Ratios

d. Solvency ratios

3. The working capital ratio is

Select one:

a. Quick assets / current liabilities

b. Working capital /current liabilities

c. Current assets minus current liabilities

d. Current assets/current liabilities

4. Earnings per share is calculated by

Select one:

a. Dividing net income by the authorized ordinary shares.

b. Dividing net income less preferred dividends by number ofordinary shares outstanding.

c. None of the above.

d. Dividing net income by the total number of ordinary andpreferred shares issued.

5. Which of the following belong to the profitabilityratios?

Select one:

a. Rate of return on equity

b. Rate of return on assets

c. All of the above

d. Gross Profit Margin

6. The category of ratios that shows the ability of the firm topay its long-term obligations is

Select one:

a. Profitability ratios

b. Solvency ratios

c. Market value ratios

d. Liquidity Ratios

7. Operating profit margin equals

Select one:

a. Income from operations / sales

b. Net income / sales

c. Gross profit / sales

d. Profit from operations / cost of sales

8. The following are quick assets except

Select one:

a. Short-term investments

b. Merchandise Inventory

c. Accounts Receivable

d. Cash

9. The following are liquidity ratios except

Select one:

a. Earnings per share

b. Working capital ratio

c. Quick ratio

d. Receivable turnover

10. Quick assets equals

Select one:

a. All current assets

b. Cash and Accounts receivable only.

c. Total assets less non-current assets

d. Current assets minus inventory

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ACCT 1209 Lecture Notes - Lecture 6: Asset, Quick Ratio, Current Liability

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