Question

Which of the following ratios is given highest significance by CFAs (Investment analysts & managers)? a....

  1. Which of the following ratios is given highest significance by CFAs (Investment analysts & managers)?

a.

Current Ratio and Accounts Receivable Turnover in days

b.

Quick Ratio and Fixed Charge Coverage

c.

Return on Equity after tax and Price/Earnings ratio

d.

Inventory Turnover and Times Interest Earned
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Answer #1

a.

Current Ratio and Accounts Receivable Turnover in days

The current ratio and the accounts receivable turnover in days is given the highest significance by the CFAs. Both are liquidity ratios. The current ratio measures the short term liquidity profile of the company and is defined as current asset to the current liabilities. The account receivable turnover, on the other hand, is defined as the net credit sales to the average accounts receivables.

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