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Listed Below Are Eight Risk Ratios Followed by a List

Question 142

Matching

Listed below are eight risk ratios followed by a list of phrases that describe or characterize the ratios. Match each phrase with the correct ratio placing the number designating the ratio in the space provided.

Premises:

Responses:

Ratio that compares interest expense with income available to pay those charges.

Average collection period

Approximate number of days the average accounts receivable balance is outstanding.

Debt to equity ratio

Cost of goods sold divided by average inventory; the number of times the firm sells its average inventory balance during a reporting period.

Acid-test ratio

Cash, short-term investments, and accounts receivable divided by current liabilities; measures the availability of liquid current assets to pay current liabilities.

Average days in inventory

Approximate number of days the average inventory is held.

Inventory turnover ratio

Net sales divided by average accounts receivable; the number of times during a year that the average accounts receivable balance is collected.

Receivables turnover ratio

Current assets divided by current liabilities; measures the availability of current assets to pay current liabilities.

Current ratio

Total liabilities divided by total stockholders' equity; measure a company's solvency risk.

Times interest earned ratio

Premises:

Ratio that compares interest expense with income available to pay those charges.

Approximate number of days the average accounts receivable balance is outstanding.

Cost of goods sold divided by average inventory; the number of times the firm sells its average inventory balance during a reporting period.

Cash, short-term investments, and accounts receivable divided by current liabilities; measures the availability of liquid current assets to pay current liabilities.

Approximate number of days the average inventory is held.

Net sales divided by average accounts receivable; the number of times during a year that the average accounts receivable balance is collected.

Current assets divided by current liabilities; measures the availability of current assets to pay current liabilities.

Total liabilities divided by total stockholders' equity; measure a company's solvency risk.

Responses:

Average collection period

Debt to equity ratio

Acid-test ratio

Average days in inventory

Inventory turnover ratio

Receivables turnover ratio

Current ratio

Times interest earned ratio

Correct Answer:

Premises:

Responses:

Ratio that compares interest expense with income available to pay those charges.

Approximate number of days the average accounts receivable balance is outstanding.

Cost of goods sold divided by average inventory; the number of times the firm sells its average inventory balance during a reporting period.

Cash, short-term investments, and accounts receivable divided by current liabilities; measures the availability of liquid current assets to pay current liabilities.

Approximate number of days the average inventory is held.

Net sales divided by average accounts receivable; the number of times during a year that the average accounts receivable balance is collected.

Current assets divided by current liabilities; measures the availability of current assets to pay current liabilities.

Total liabilities divided by total stockholders' equity; measure a company's solvency risk.