Archive for the ‘Definitions’ Category

Liquid Assets

February 14th, 2013

Resources that can be converted to cash in a relatively short period.


February 13th, 2013

The financial resources in the form of coins and currency, bank deposits and short-term investments that can be converted easily into currency and that can be used to pay for resources and obligations of a business.

Operating Profit Margin

February 12th, 2013

The ratio of operating income (sales revenue less operating expenses) to sales revenue.

Average collection period

February 11th, 2013

The ratio of accounts receivable to average daily sales. Businesses that invoice for services might have an average collection period whereas a retail outlet probably would not.

Current Ratio

February 8th, 2013

Current assets divided by current liabilities. This is a measure of solvency of a business.

Quick Ratio

February 7th, 2013

This ratio measure short-term solvency. It is the ratio of the most liquid of current assets (usually cash) to current liabilities.

Working Capital Ratio

February 6th, 2013

The ratio of current assets to current liabilities. A company needs a positive working capital ratio to remain solvent.

Return on Sales

February 5th, 2013

Also known as profit margin. The ratio of net income to sales.

Return on Investment

February 4th, 2013

The amount of profit earned by a business that could be paid to the owners/shareholders. This is calculated by profit divided by average investment during the fiscal period.

Return on Equity

February 1st, 2013

Net income divided by stockholder’s equity. This evaluates the return earned based in comparison to investment. It is useful in evaluating the value of the investment to the stockholder.