Statement Analysis Tools and Accounting Ratios Test - 3

Liquid Ratio is also known as Acid Test Ratio which helps in assessing the short term liquidity position of the firm.

Trade payable turnover ratio is a ratio of credit purchases to average trade creditors. It measures the speed with which a company pays its suppliers.

Loan taken for more than one year can be termed as long term borrowings

Current assets will reduce by that much amount as cash is paid and liabilities will reduce by that amount as outstanding liabilities will decrease

Fictitious Assets (unamortized expenses) are subtracted while calculating capital employed:

i.e. Share Capital + Reserves and Surplus + Long term borrowings – Fictitious Assets

Low working capital turnover ratio indicates that the working capital of business is under-utilized. It means firm is investing in too many account receivable and inventory to support its sales.

Financial statement analysis is of two types i.e. External and internal analysis. External analysis is concerned with comparing business with other firm. Internal analysis undertaken by the mangement of the company to monitor its financial and operating performance.

Quick assets are the assets which can be converted into cash in a short term.

Accounting Ratios can be expressed as follows:

a) Simple or pure ratio

b) Percentages

c) Rate

Quick Ratio is also known as liquid ratio. Formula: Liquid Assets/ Current Liabilities