Financial Ratios Series – Activity Ratios Part 2

“Some people dream of great accomplishments, while others stay awake and do them.” Anonymous Accounts Receivable Turnover This is a widely used ratio as it is a very important metric to watch. The A/R Turnover ratio measures how many times outstanding receivables from sales are collected each year. Because it’s an average, this ratio does not take into account seasonality … Read More

Financial Ratios Series – Activity Ratios Part 1

“If you want to achieve excellence, you can get there today. As of this second, quit doing less-than-excellent work.” Thomas J Watson Activity ratios measure  a firm’s ability to manage its resources efficiently. More specifically manage accounts receivable, assets, inventory, and accounts payable. For these type of ratios, we will use accounts from the Profit & Loss Statement and Balance … Read More

Financial Ratios Series – Liquidity Ratios Part 4

“In the midst of movement and chaos, keep stillness inside you.” Deepak Chopra Cash Ratio The cash ratio the most conservative ratio than the current and quick ratios. To calculate it, we take the sum of cash & equivalents and marketable securities, and divide it by total current assets. As you have probably guessed it, this ratio indicates a company’s … Read More

Financial Ratios Series – Liquidity Ratios Part 3

“Go to bed a little wiser than when you woke up.” Charlie Munger Quick/Acid Test Ratio The quick ratio, or also known as acid test ratio, is very similar to the current ratio. The main difference is that it is a more conservative ratio. It means that instead of looking at all the current assets of a company, we look … Read More

Financial Ratios Series – Liquidity Ratios Part 2

“Change your thoughts and you change your world.” Norman Vincent Peale Current Ratio The first ratio we’ll look at is the Current Ratio. This ratio measures the amount of current assets in a company that are available to pay for its current liabilities. If you recall from part 1, current assets are the type that can be converted into cash … Read More