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Liquidity of Receivables

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Financial Statement Analysis-FIN621
VU
Lesson-35
ACTIVITY RATIOS
(Continued)
(B)
Liquidity of Receivables: It shows have quickly Accounts Receivables are
collected i.e. converted into cash. It is determined by Receivable Turnover Ratio
(RTO). It is number of times "Receivables" are converted into cash during the year.
=
net sale for the year
= 100 = 10
Average Receivables during the year.  10
Ideally RTO = net credit sales______________
Monthly average of Receivables
The higher the RTO, the more liquid the company's Receivables.
Days required to collect Receivables i.e.
Converting "Receivable" into cash = 365 or 300 = 36 or 30
Normal credit terms: 30 to 60 days.
Length of operating cycle: A+ B (158, 130) days.
RATIOS
Gross Profit
x 100
Gross profit ratio
Net sales
Net Profit
x 100
Net Profit ratio
Net sales
Operating Profit x 100
Operating Profit ratio
Net sales
Individual Expenses
x 100
Expenses ratios
Net sales
Operating cost
x 100
Operating (Cost) Ratio
Net sales
Net Profit after inteerest and tax
x 100
Net Profit to net worth ratio
Net sales
Net Profit before interest, tax
x 100
Return on capital employed (ROI)
Capital employed
Net profit avaiable for equity shareholders
Earning per share
Number of equity shares
Dividends per share
______Dividend amunt______
133
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Financial Statement Analysis-FIN621
VU
Number of equity shares
___Cost or sales ___
Capital employed turnover ratio
Capital employed
Cost of sales or sales
Fixed assets turnover ratio
Fixed assets
Cost of sales or Net sales
Working capital turnover ratio
Net working capital
_____Cost of goods and sold______
Inventory turnover ration
Average accounts receivables
______Annual net credit sales______
Debtors (receivables) turnover ratio
Average accounts receivables
_______Accounts receivables______
Debtors (receivables) collection period
Average accounts receivables
____Net credit pruchases ___
Creditors turnover ratio
Average creditors
____Average accounts payables ___
Average credit period
Net credit purchase per day
_____Current aeests ____
Current ratio
Current liabilities
_______Quick assets______
Quick ratio/Acid test ratio
Current liabilities
Debt-equity ratio:
____Total long term debt____
(i)
Debt to net worth
Shareholder's funds
______External equity____
(ii)
External-internal equity
Internal equity
____Total long term debts ___
(iii)
Debt vs. funds
Total long term funds
Earnings before interest and taxes
Debt service ratio
Fixed interest charges
____Net fixed assets ___
Fixed assets ratio
Long-term funds
Solvency (Debt to total funds)
____Total liabiities ___
ratio
Total assets
____________ Equity _____________
Capital gearing ratio
fixed interest bearing securities
134
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Financial Statement Analysis-FIN621
VU
Proprietor's funds
Proprietary ratio
Total assets
135
Table of Contents:
  1. ACCOUNTING & ACCOUNTING PRINCIPLES
  2. Dual Aspect of Transactions
  3. Rules of Debit and Credit
  4. Steps in Accounting Cycle
  5. Preparing Balance Sheet from Trial Balance
  6. Business transactions
  7. Adjusting Entry to record Expenses on Fixed Assets
  8. Preparing Financial Statements
  9. Closing entries in Accounting Cycle
  10. Income Statement
  11. Balance Sheet
  12. Cash Flow Statement
  13. Preparing Cash Flows
  14. Additional Information (AI)
  15. Cash flow from Operating Activities
  16. Operating Activities’ portion of cash flow statement
  17. Cash flow from financing Activities
  18. Notes to Financial Statements
  19. Charging Costs of Inventory to Income Statement
  20. First-in-First - out (FIFO), Last-in-First-Out (LIFO)
  21. Depreciation Accounting Policies
  22. Accelerated-Depreciation method
  23. Auditor’s Report, Opinion, Certificate
  24. Management Discussion & Analyses (MD&A)
  25. TYPES OF BUSINESS ORGANIZATIONS
  26. Incorporation of business
  27. Authorized Share Capital, Issued Share Capital
  28. Book Values of equity, share
  29. SUMMARY
  30. SUMMARY
  31. Analysis of income statement and balance sheet:
  32. COMMON –SIZE AND INDEX ANALYSIS
  33. ANALYSIS BY RATIOS
  34. ACTIVITY RATIOS
  35. Liquidity of Receivables
  36. LEVERAGE, DEBT RATIOS
  37. PROFITABILITY RATIOS
  38. Analysis by Preferred Stockholders
  39. Efficiency of operating cycle, process
  40. STOCKHOLDERS’ EQUITY SECTION OF THE BALANCE SHEET 1
  41. STOCKHOLDERS’ EQUITY SECTION OF THE BALANCE SHEET 2
  42. BALANCE SHEET AND INCOME STATEMENT RATIOS
  43. Financial Consultation Case Study
  44. ANALYSIS OF BALANCE SHEET & INCOME STATEMENT
  45. SUMMARY OF FINDGINS