BU121 Lecture Notes - Tax Shield, Nopat, Variable Cost
Document Summary
Formulas are given on the final exam (but aren"t labelled or grouped so we have to know which is which) Current ratio = average current assets/average current liabilities. You should have more than twice the current assets than current liabilities so you can have enough funds available to pay the bills (so it can cover the timing difference) If you have more than 4 times the current assets of liabilities, your return is lower (you could be using those assets to invest) Use averages because there can be dramatic differences from one period to the next. Current assets are found on the balance sheet (average is this year"s assets plus last year"s assets divided by 2) Acid test/quick ratio = average current assets average inventories. Take out inventories because they are less liquid. Nwc (net working capital) to total assets ratio. = average current assets average current liabilities.
