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ACP Business Chapter 14 (1)

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ACP Business Chapter 14 (1)

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  • July 14, 2024
  • 2
  • 2023/2024
  • Exam (elaborations)
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ACP Business Chapter 14
Ratio Analysis - ANS-Calculations that measure an organization's financial health

The usefulness of Ratio - ANS-Overall they are not very useful unless a relationship is formed to
compare past examples

Profitability ratios - ANS-Ratios that measure the amount of operating income or net income an
organization is able to generate relative to its assets, owners' equity, and sales

Profit Margin - ANS-Net income divided by sales

Return on Assets - ANS-Net income divided by assets

Return on equity - ANS-Net income divided by owners' equity; also called return on investment
(ROI)

Asset utilization ratios - ANS-Ratios that measure how well a firm uses its assets to generate
each $1 of sales

Receivables turnover - ANS-Sales divided by accounts receivable

Inventory turnover - ANS-Sales divided by total inventory

Total asset turnover - ANS-Sales divided by total assets

Liquidity ratios - ANS-Ratios that measure the speed with which a company can turn its assets
into cash to meet short-term debt

Current ratio - ANS-Current assets divided by current liabilities

Quick ratio (acid test) - ANS-a stringent measure of liquidity that eliminates inventory (Current
assets minus Inventory divided by Current Liabilities)

Debt utilization ratios - ANS-Ratios that measure how much debt an organization is using
relative to other sources of capital, such as owners' equity

Debt to total assets ratio - ANS-A ratio of how much of the firm is financed by debt and how
much is owners' equity

Times interest earned ratio - ANS-Operating income divided by interest expense

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