ppt课件-chapter title- california state university, chico（章标题,加州州立大学奇科）.pptVIP

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ppt课件-chapter title- california state university, chico（章标题,加州州立大学奇科）.ppt

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Short-term creditors, such as suppliers, want to be paid on time. Therefore, they focus on the company’s cash flows and on its working capital. The information shown for Norton Corporation will be used to calculate ratios of interest to short-term creditors. The excess of current assets over current liabilities is known as working capital. Working capital is not free. It must be financed with long-term debt and equity. Therefore, managers often seek to minimize working capital. A large and growing working capital balance may not be a good sign. For example, it could be the result of unwarranted growth in inventories. Norton Corporation’s working capital of $23,000 is calculated as current assets of $65,000 minus current liabilities of $42,000. The current ratio is computed as shown. It measures a company’s short-term debt paying ability. It must be interpreted with care. For example, a declining ratio may be a sign of deteriorating financial condition, or it might result from eliminating obsolete inventories or other stagnant current assets. Norton Corporation’s current ratio of 1.55 is calculated as shown. The acid-test ratio is computed as shown. It is a more rigorous measure of short-term debt paying ability because it only includes cash, marketable securities, accounts receivable, and current notes receivable. It measures a company’s ability to meet its obligations without having to liquidate its inventory. Norton Corporation’s acid-test ratio is 1.19. Each dollar of liabilities should be backed by at least one dollar of quick assets. Norton satisfies this condition. The accounts receivable turnover is calculated as shown. It measures how quickly credit sales are converted to cash. Norton Corporation’s accounts receivable turnover is 26.7. A related measure called the average collection period is computed as shown. It measures how many days, on average, it takes to collect an account receivable. It should be interpreted relative to the credi