Question

How are each of the following calculated:

o Current ratio

o Quick ratio

o Days Cash on Hand

o Days Receivables

o Operating margin

o Return on total assets

Answer 1

CURRENT RATIO

current Ratio is a comparison of current assets to current liabilities.

Creditors use the current ratio to measure a company's liquidity or ability to pay off short term Debt.

Calculated by dividing Current Assets by Current Liabilities

Current Ratio =Current Assets/ Current Liabilities.

QUICK RATIO

Quick Ratio is Calculated by deducting Inventory from the total current Assets then dividing the value by total Current Liabilities

QR= Total Current Assets - Inventory/ Total Current Liabilities

Quick Ratio assesses the Liquidity position of a company by computing how well the most liquid assets can cover the Current Liabilities

DAY CASH ON HAND

Days cash on hand is the number of days that a company can continue to pay its operating expenses,given the amount of cash available

Day cash on hand = cash on hand/ [( Operating expenses - Non cash expenses) / 365]

DAY RECEIVABLE

Day Receivable is a measure of the average number of days that it takes a company to collect payment after a sales has been made.

Day Receivable = (Account Receivable × number of days)/total credit sales

OPERATING MARGIN

Operating margin measures how much profit a company makes on a dollar of sales,after paying for variable costs of production,such as wages and raw material but before paying interest or taxes.

It is Calculated by dividing a co's operating profit by its net sales

Operating Margin = Operating Profit / Net sales × 100

RETURN ON TOTAL ASSETS

Return on Total Assets is a Profitability ratio that measures the net income produced by Total Assets during a period by comparing Net Income to the average Total Assets

Calculated by dividing net Income by average Total Assets

Return on Total Assets = Net Income/ Average Total Assets ×100