Microsoft Word XXXXXXXXXXSP6 Assignment 2 - ACC81210 ACC81210 Accounting for Managers, Assignment 2, SP XXXXXXXXXXPage 1 of 2 ACC81210 (Accounting for Managers) SP6, 2018 ASSIGNMENT 2 (30 MARKS) Part...

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Answered Same DayNov 18, 2020ACC81210Southern Cross University

Answer To: Microsoft Word XXXXXXXXXXSP6 Assignment 2 - ACC81210 ACC81210 Accounting for Managers, Assignment 2,...

Payal answered on Nov 22 2020
146 Votes
Ratio Analysis - Theory
    Solvency Ratios
    Current Ratio (CR)    
Current Ratio (CR) = Current Assets
Current Liabilites    This ratio is a reflection of company's financial strength. This is a measure of short term liquidity which indicates a firms ability to meet its short-term obligations/current liabilities from its currrent assets. A company is considered insolvent, when this ratio is less than 1,which means its current liabilities exceed its current assets.
    Quick Ratio (QR)    Quick Ratio (QR) = Cash assets + Receivables
Current Liabilities    Quick Ratio is also called as the "Acid Test" Ratio. This is a more rigous measure of short term liquidity because it looks at the company’s most liquid assets and compares them to current liabilities.It tests whether the company can meet its current obligations even when adverse situations arise.
    Leverage Ratios
    Debt/Equity    
Debt/equity = Debt
Equity
    The Debt-to-Equity Ratio (or Leverage Ratio) measures how much the company is dependent on debt financing as compared to owner’s equity. It shows how much of a business is owned and how much is owed.It shows how much a firm is levered or the extent of gearing used by the company.
    Debt/Capital    
Debt/capital = Debt
Capital
    This metric shows the porportion of debt used by the company to finance its operations when compared with its total capital.
    Debt/ Assets    
Debt/Assets = Debt
Assets
    This metric measures the porportion of assets that is financed by debt as compared with owners equity.In other words, this ratio simply tells the amount of assets financed by creditors instead of investors.
    Interest Coverage     Interest Coverage = EBIT
Interest expenses    This ratio measures the company's ability to make timely interest payments on its debt.
    Turnover Ratios
    Inventory Turnover Ratios    Inventory Turnover = Cost of goods sold
Average Inventory    The Inventory Turnover Ratio measures the number of times inventory was “turned over” or inventory was sold during a given time period. This ratio serves a good indication about the purchasing and production efficiency of the company..
    Inventory Days in Hand    Inventory Days = 365
Inventory Turnover Ratio    Once you have calculated the Inventory Turnover Ratio, next step would be to calculate the actual number of days of inventory you have in hand.
    Debtors Turnover Ratio    Debtors Turnover Ratio = Sales
Average Debtors    This Ratio measures the number of times accounts receivable was turned over during a given time period of time. A higher ratio indicates a shorter time from making the actual sales to collection of cash.
    Debtors Days     Debtors Days = 365
Debtors Turnover Ratio    Once you have calculated the Receivables Turnover Ratio, next step would be to calculate the actual number of days, accounts receivable was outstanding.
    Accounts Payable Turnover    Payables Turnover = Cost of goods sold
Average Payables    The Accounts Payable Turnover Ratio measures the number of times, Payables were "turned over" during a given period of time. This Ratio tells about how many times a company pays off its accounts payable.
    Accounts Payable Days    Payables Days = 365
Payables Turnover Ratio    Once you have calculated the Receivables Turnover Ratio, next step would be to calculate the actual number of days, accounts payables were outstanding.Again, this is important ratio which tells whether the company has enough cash to run its business & to pay its suppliers on time.
    Net Assets Turnover ratio    Net Assets Turnover Ratio = Sales
Net assets    This ratio tells how efficiently company uses its assets to generate sales. Higher the ratio, generally it is better.
    Return Ratios
    Return on Assets Ratio    Return on Assets Ratio = Net Income
Average assets     Return on assets ratio or ROA measures how efficiently a company is using its assets to generate profits during a given period of time.
    Return on Equity Ratio    Return on Equity Ratio = Net Income
Average Equity    Return on assets ratio or ROA measures the ability of the firm to generate profits for its shareholders during a given period of time.
    Operating profit Margin    Operating Margin Ratio = EBIT
Sales    Measures operating profitability of each dollar of sales for a company.
    Gross Profit Margin    Gross Profit margin = Gross Profit
Sales    How efficiently company uses its material & labour to produce & sell its products profitably.
    Net Profit Margin    Net Profit margin = Net Profit
...
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