Financial Ratios and Calculations

Calculation Example

  • Calculating 5% of 300,000:
    • 300,000×0.05=15,000300,000 \times 0.05 = 15,000
  • Claims Made: $10,400
  • Remaining Amount Calculation:
    • 15,000−10,400=4,60015,000 - 10,400 = 4,600

Liquidity Ratios

  • Working Capital, Current Ratio, and Asset Test Ratio are used to determine a company's liquidity.

Working Capital and Current Ratio

  • Distinction between Working Capital and Current Ratio:
    • The calculation is specific to three new homes; it does not involve all current assets.
    • Other assets exist that could be considered current, but they are not of interest in this specific calculation.

Cash and Accounts Receivable (AR)

  • Cash is equivalent to cash.
  • Accounts Receivable (AR) is considered as good as cash.