WGU C201 Business Acumen Chapter 15 & 16: Accounting and Financial Statements – Ratios – Q’s and A’s

WGU C201 Business Acumen Chapter
15 & 16: Accounting and Financial
Statements – Ratios – Q’s and A’s
Current assets / current liabilities - -Current Ratio

-Current assets - minus inventory / current liabilities - -Acid Test (Quick)
Ratio
Current assets $250
Inventory $20
Current Liabilities $100
250-20=230
230/100=2.2
$2.20 assets for every $1 in liabilities

-Acid Test (Quick) Ratio and Current Ratio - -Liquidity Ratios

-Inventory Turnover, Receivables Turnover, and Total Asset Turnover - -
Activity Ratios

-Cost of goods sold / average inventory - -Inventory Turnover.
Equals the number of times inventory moves through a business.
Cost of Goods Sold $200,000
Average Inventory $20,000
200000/20000 = 10
Compare these to industry averages for industry.

-Credit sales / average accounts receivable - -Receivables Turnover

-Sales / Average Total Assets - -Total Asset Turnover.
Equals how much sales each dollar invested in assets generates.

-Debt Ratio and Long Term Debt to Equity - -Leverage Ratios

-Total Liabilities / Total Assets - -Debt Ratio
Exact opposite of liquidity.

-Long-Term Debt / Owner's Equity - -Long Term Debt to Equity

-Gross Profit Margin, Net Profit Margin and Return on Equity - -Profitability
Ratios

-Gross profit / sales - -Gross Profit Margin.