All practicing CPAs will profit from this course, which presents the financial statements as a set of dynamic instruments that can be used for accurate, relevant and timely financial decisions.
Objectives:
Prerequisite: None
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• Understand why these ratios are "effect" ratios and not causal ratios.Introduction
• Know why you should not focus on the effect but on the cause.
• Determine what each of these ratios measures.
• Calculate each ratio.
• Determine how a change in any one of the causal ratios will affect each ratio.
• Current RatioLeverage Measures
• Quick Ratio
• Defensive Interval
• Cash Conversion Cycle
• Inventory/Working Capital
• Receivables/Working Capital
• Net Sales/Working Capital
• Operating Cash Flow to Current Liabilities
• Debt to Net WorthProfitability Measures
• Debt to Assets
• Tangible Debt Ratios
• Short-term Debt to Net Worth
• Times Interest Earned
• Cash Times Interest Earned
• Fixed Charge Coverage
• Return on Equity – Net Income/Net WorthThere are three areas of concern that are measured by financial statement characteristics. Liquidity is the measurement of how well the firm can meet its obligations in the short run. The second area is leverage. Leverage ratios measure the firm's debt usage and how well it can afford its debt. The third area is profitability. Profitability ratios are a measure of how profitable a firm is relative to its size.
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