S. No. RATIOS FORMULAS 1 Inventory Ratio Net Sales Inventory 2 Debtors Turnover Ratio Total Sales Account Receivables 3 Debt Collection Ratio Receivables. Definition of collection ratio The average time period for which receivables are outstanding. Equal to accounts receivable divided by average daily. When it comes to investing, analyzing financial statement information also known as quantitative analysis, is one of, if not the most important element in the. Net Collection Ratio FormulaWondering what your practice is worth Learn how the net collection rate can help you figure that out. Mgma Definition Of Net Collection RatioSalinity Concentration of dissolved salts found in a sample of water. Measured as the total amount of dissolved. Net Working Capital, Current Ratio, Quick Ratio, Cash Ratio. Liquidity measures measure a firms ability to pay operating expenses and other short term, or current, liabilities. Because current liabilities, which are debts that must be paid or obligations that must be fulfilled, within 1 year, are paid out of current assets, which are received as cash or otherwise used within 1 year, liquidity measures are calculated using current assets and current liabilities. Current assets include cash and cash equivalentsshort term investmentsaccount receivablesinventoryprepaid expenses. Current liabilities include accounts payableshort term debtcurrent interest payments for long term debtsalariestaxes. A low liquidity measure would indicate either that the company is having financial problems, or that the company is poorly managed hence, a fairly high liquidity ratio is good. However, it shouldnt be too high, because excess funds incur an opportunity cost and can probably be invested for a higher return. Primary measures of liquidity are net working capital and the current ratio, quick ratio, and the cash ratio. By contrast, solvency ratios measure the ability of a company to continue as a going concern, by measuring the ratio of its long term assets over long term liabilities. Net Working Capital. Working capital is used to run the business and to pay its current liabilities, of which a portion are operating expenses. Net Collection Ratio Calculation' title='Net Collection Ratio Calculation' />Related Terms Balance Sheets Cash Flow Statements Income Statements Return on Assets Financial ratios are relationships determined from a companys financial. Ratio What does it tell you Sales Growth Current Period Previous Period Sales Previous Period Sales Percentage increase decrease in sales between two time. Flavor Text Sun It burns its bodily fluids to create a poisonous gas. When its enemies become disoriented from inhaling the gas, it attacks them. This ratio indicates whether your investment in the business is adequately proportionate to your sales volume. It may also uncover potential credit or management. The sources of working capital include internal sourcesretained earningsa shorter earnings cycle, which is the time from investing the cash to receiving cash for the finished product or servicecash flow from depreciation or deferred taxesexternal sourcesloanstrade creditdebt and equity financing used for working capital. Net working capital is what remains after subtracting current liabilities from current assets hence, it is money to run the business. Net Working Capital Formula. Net Working Capital  Current Assets  Current Liabilities. Net working capital is used for the cash conversion cycle aka earnings cycle of a business, which uses cash for raw materials, converts into the finished product, sells the product, then receives payment for it. This conversion cycle may vary depending on the type of business, but net working capital is essentially the cash needed to run the business. Current Ratio. The current ratio aka working capital ratio is the ratio of current assets divided by current liabilities. Current Ratio Formula Current Ratio Current Assets. Current Liabilities. The current ratio is a measure of liquidity and shows how well a company can pay its current liabilities. ExampleCalculating the Current Ratio of Exxon Mobil for 2. For its fiscal year ending December 3. Exxon Mobil Corp. XOM had total current assets of 8. What is its current ratioCurrent Ratio 8. The current ratio gives an investor a better idea of how much safety a company has in paying its current liabilities regardless of the size of the company, whereas net working capital must be compared to the amount of liabilities. ExampleNet Working Capital and Current Ratio of a Small and Large Company. Big Company has current assets of 1 billion and current liabilities of 9. Small Company has current assets of 1. Net Working Capital of Big Company 1,0. Net Working Capital of Small Company 1. Current Ratio of Big Company 1,0. Current Ratio of Small Company 1. As you can see, the net working capital of Big Company and Small Company are the same, but the small company has a much higher current ratio. Small Company has net working capital that is 1. Big Company has net working capital that is only 0. In other words, Small Company has 1. Big Company has only 1. Hence, Small Company would be able to survive a financial downturn better than Big Company. Whether a current ratio is good or bad depends on the type of business. For example, a service company that has little or no inventory would have a current ratio less than 1. And if the current ratio is less than 1, then the company does not have enough current assets to pay current liabilities. Some real world examples data accessed 1. Intel, a manufacturer of computer chips with a lot of inventory current ratio 2. Microsoft, a software company with a lot of cash current ratio 1. GM, an auto manufacturer in financial trouble current ratio 0. This current ratio indicates that GM has only about 7. So GM probably would have gone bankrupt without a government bailout. The Current Ratio Is Easily Manipulated. Investors should be careful in using the current ratio to assess the solvency of a company, since it is easily manipulated. For instance, a company with 2 million worth of assets and 1 million worth of liabilities has a current ratio of 2. If the company buys 1 million worth of inventory, then current assets increases to 3 million while current liabilities increases to 2 million, yielding a current ratio of 1. On the other hand, if the company pays off 5. Thus, management can easily change the current ratio by a factor of 2 or more. Quick Ratio. Current assets includes inventory and prepaid expenses, which are relatively illiquid compared to cash, short term investments and other marketable securities, and accounts receivable hence, a better measure of liquidity for companies with large inventories or prepaid expenses is the quick ratio aka acid test ratio, quick asset ratio, which is the same as the current ratio, but without the value of inventory and prepaid expenses in the numerator. In other words, only assets that can be quickly converted into cash aka quick assets are included in the numerator. Quick Ratio Formula. Quick Ratio Cash Marketable Securities Accounts Receivables. Current Liabilities. In terms of current assets Quick Ratio Current Assets Inventory Prepaid Expenses. Current Liabilities. Cash Ratio. Some businesses may have trouble converting their accounts receivables into cash quickly, so another measure of liquidity is the cash ratio, equal to the cash plus marketable securities over current liabilities Cash Ratio Formula. Taboo Game Wedding Version Of Marry there. Cash Ratio Cash Marketable Securities. Current Liabilities. The cash ratio is a better measure of the ability of a business to meet its current liabilities in business downturns. However, even the cash ratio may be insufficient in a general financial crisis, such as the recent 2.