Short Term Liquidity Ratios
Current Ratio
Measures the ability to pay current liabilities out of current
assets.
Current assets
/ Current liabilities
= Current ratio
730
550
1.33
1,030
710
1.45
Working Capital(Operational Management) Ratios
Accounts Receivable Turnover
Measures the ability to collect from customers.
Annual net credit sales
/ Average net account receivables
= Accounts receivable turnover
4,000
200
20.00
4,800
275
17.45
Average Collection Period
Measures the average number of days that it takes to collect
accounts receivable.
365 days
/ Accounts receivable turnover
= Average collection period (Days Sales Outstanding)
365
20.00
18.25
365
17.45
20.91
WIP Turnover
Measures the conversion of WIP. Indicates the number of
times WIP is sold or "turned" per year.
Cost of sales
/ Average WIP
= WIP turnover
3,040
400
7.60
3,820
455
8.40
Days Sales in WIP
Measures WIP levels based on days sales.
365 days
/ WIP turnover
= Days sales in WIP
365
7.60
48.03
365
8.40
43.48
2,760
250
11.04
3,420
275
12.44
365
11.04
33.06
365
12.44
29.35
18.25
48.03
(33.06)
33.21
20.91
43.48
(29.35)
35.04
Accounts Payable Turnover
Measures the number of times payables turnover in a year.
Total purchases
/ Average accounts payable
= Accounts payable turnover
Average Days Payable
Measures the number of days taken to pay creditors.
365 days
/ Account payable turnover
= Days purchases in accounts payable
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Days in Cash Operation Cycle(Funding Gap)
Average collection period (Days Sales Outstanding)
+ Days sales in WIP
- Days purchases in accounts payable
= Days in Cash Operation Cycle(Negative Funding Gap)