Current Ratio : Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1
Formula:
Accounts receivable ratio: This ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. Main purpose of accounts receivable turnover ratio is to manage theworking capital of the company.
Formula:
- Average collection period: Average collection period is used to determine the number of days a particular company takes to collect accounts receivables.
Formula:
- Inventory turnover ratio: Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period.
Formula:
- Days’ sales in inventory: Days’ sales in inventory are used to determine number of days a particular company takes to make sales of the inventory available with them.
Formula:
To compute: Liquidity ratios
Given info: Items of current assets and current liabilities

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Chapter 13 Solutions
Financial Accounting: Tools for Business Decision Making, 8th Edition
- TechNova Inc. is starting a new project expected to generate $1,200,000 in revenues, $400,000 in cash operating expenses, and depreciation expense of $200,000 per year for 8 years. The corporate tax rate is 30%. The project will require an increase in net working capital of $100,000 in year one and a decrease in net working capital of $90,000 in year eight. What is the free cash flow from the project in year one? A) $520,000 B) $530,000 C) $540,000 D) $550,000arrow_forwardDon't use ai given answer and general accountingarrow_forwardProvide correct optionarrow_forward
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
