I would like to record about the key points of the US CPA exam content.
<Create and note the points based on mainly Becker’s workbook>
Net profit margin
- Net income / Net sales
Accounts receivable turnover
- Net sales / average net accounts receivable
Days sales in accounts receivable
- Ending net accounts receivable / net sales
Inventory turnover
- Inventory turnover = Cost of goods sold / Average inventory
- If inventory is sold at cost, net income does not change but sales increases. Therefore, the numerator does not change but the denominator increases, causing net profit margin to decrease.
- Net purchase is not Cost of good sold.
Days in inventory
- Ending inventory / (cost of goods sold / 365 days)
Debt-to-equity ratios
- total all liabilities/ total equity
The quick ratio
- The quick ratio is calculated by dividing [cash+ cash equivalents + net account receivables marketable securities] by current liabilities.
Times interest earned
- Income before interest expense and taxes / Interest expense.
- Earnings before interest and taxes / Interest expense
