Page 390 - F1 Integrated Workbook STUDENT 2018

Chapter 23

Trade payables days

This is the average period of credit extended by suppliers.

Average payables
= ––––––––––––––– × 365
Credit purchases

Trade receivables days

This is the length of time credit is extended to customers.

Average receivables
= ––––––––––––––––– × 365
Credit sales

Current ratio

This measures how much of the total current assets are financed by current liabilities.

A measure of 2:1 means that current liabilities can be paid twice over out of existing
current assets.

Current assets
Current ratio = –––––––––––––
Current liabilities

Quick (acid test) ratio

A measure of 1:1 means that the entity is able to meet existing liabilities if they all fall
due at once.

 Measures how well current liabilities are covered by liquid assets.

 Is particularly useful where inventory holding periods are long.

Current assets – Inventory
Quick ratio (acid test) = ––––––––––––––––––––
Current liabilities

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