There are a number of earnings definitions and CFAI expects candidates to know the differences among the various definitions and recognize adjustments which should be made to reported earnings in order to perform valuation analysis. Operating Income (OI) OI = Revenues – Cost of Goods Sold – Selling, General, & Admin Expenses – Other Operating […]

# Financial Management

## Liquidity Ratios and Cash Conversion Cycle – Video Summary

In the previous articles we learned about the key liquidity ratios (current ratio, quick ratio, cash ratio, and defensive interval ratio), and the Cash Conversion Cycle. The following video from Bionic Turtle provides a summary of all these liquidity ratios along with examples.

## Cash Conversion Cycle (CCC)

Cash Conversion Cycle is an important concept in liquidity analysis. The cash conversion cycle indicates the time (no. of days) it takes for the cash invested in the business to be converted back to cash. In other words it is the total time taken to sell its inventory, collect the receivables, and pay the creditors. […]

## Liquidity Ratios (Current Ratio, Quick Ratio, and Others)

Liquidity is a measure of how quickly a firm is able to convert its assets into cash. While analyzing the liquidity position of a company, an analyst uses the common liquidity ratios to measure the company’s ability to pay-off its short-term liabilities. There are four important liquidity ratios: Current Ratio Quick Ratio Cash Ratio Defensive […]

## Activity Ratios – Video Summary

In the previous articles we learned about the key activity ratios: Inventory Turnover and Days of Inventory on Hand (DOH), Receivables Turnover and Days of Sales Outstanding (DSO), Payables Turnover and Number of Days of Payables, Working Capital Turnover Ratio and Fixed Asset and Total Asset Turnover Ratio. The following video from Bionic Turtle provides […]

## Fixed Asset and Total Asset Turnover Ratio

Fixed Asset and Total Asset turnover ratios reflect how effectively the company is using its assets, i.e., their ability to generate revenue from the given assets. Fixed asset turnover ratio measures how much revenue a company generates from every dollar of fixed assets. Total asset turnover ratio measures how much revenue a company generates from […]

## Working Capital Turnover Ratio

Working capital turnover ratio reflects how effectively the company is using its working capital. Working capital turnover ratio measures how much revenue a company generates from every dollar of capital invested during a year. Formula Example Assume that a company has $1.2 million in sales for the year. Its current assets were $700,000, and current […]

## Payables Turnover and Number of Days of Payables

Payables turnover is an important activity ratio, and provides a measure of how effectively a business is managing its payables. The payables turnover ratio measures the number of times the company pays off all its creditors in one year. For example, a payables turnover ratio of 10 means that the payables have been paid 10 […]

## Receivables Turnover and Days of Sales Outstanding (DSO)

Receivables turnover is an important activity ratio, and provides a measure of how effectively a business is managing its receivables. The receivables turnover ratio measures the number of times the company collected its receivables during a specified period. For example, a receivables turnover ratio of 10 means that the receivables have been collected 10 times […]

## Risk, Return, and Social Security

This lecture addresses some final points about the CAPM. How would one test the theory? Given the theory, what’s the right way to think about evaluating fund managers’ performance? Should the manager of a hedge fund and the manager of a university endowment be judged by the same performance criteria? More generally, how should we […]