MGAB01H3 Study Guide - Final Guide: Asset Turnover, Profit Margin, Current Liability

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Published on 23 Dec 2015
School
UTSC
Department
Financial Accounting
Course
MGAB01H3
Professor


Current Assets ÷ Current Liabilities


  ! "
#
$  %
&# '
(
$
S ales Revenues ÷ Avg Total Assets


 %)!%"*
+
&,! 

N et Income ÷ Average Total Assets
 )

-*)
.*.
÷
./" )
0
%
1)2'.3& 

#.
÷
/  #" /

4   5     * 
5
'6 
5 
7
83*383*
÷
./" )0
 
 *", 
(9"*+
$'! :"
)  
2
'! :

$./0"
0
 
  ! "*  

&* *!  *
 '*  
 *
$0" %)

,  
#2  !
0"(!!

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Current ratio: current assets current liabilities indicator of ability to pay off current. Higher the ratio, more cushion for company to pay off current obligations; good liabilities liquidity. Too high ratio means inefficient use of resources. May be misleading measure of liquidity if sig funds tied up in assets that aren"t easily converted to $ Total asset turnover: s ales revenues avgtotal assets how effective mgmt is at generating sales from assets. High means efficient mgmt. , low means less efficient; stronger financial. May seasonally bc fluctuations, but declining ratio can also be bc policy changes. Return on assets: n et income average total assets how well mgmt. used invested capital. Broadest measure of profitability and mgmt. effectiveness. Net profit margin ratio: net earnings net sales ; how effective mgmt. is at controlling performance = during period rev/exp to gen earnings. Decisions mgmt. makes to maintain company"s npm ratio may have negative long.

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