C Formulas

Question 1

Current ratio?

Answer 1

Current assets / Current liabilities

Question 2

Quick ratio?

Answer 2

(Current assets - Inventory) / Current liabilities

Question 3

Inventory turnover?

Answer 3

Cost of sales / Average inventory

Question 4

Inventory holding period?

Answer 4

(Average inventory / Cost of sales) * 365

Question 5

Receivables collection period?

Answer 5

(Average accounts receivable / Annual credit sales) * 365

Question 6

Payables payment period?

Answer 6

(Average accounts payables / Annual credit purchases) * 365

Question 7

Sales/working capital?

Answer 7

Annual sales / Average working capital

Question 8

Finished goods holding period

Answer 8

(Finished goods inventory / Annual COGS) * 265

Question 9

WIP production period

Answer 9

(Work in progress / Annual COGS) * 365

Question 10

Raw materials holding period

Answer 10

(Raw materials inventory / Annual raw materials purchases) * 365

Question 11

Total annual cost? (inventory)

Answer 11

​Annual holding cost + Annual order cost + Annual purchase cost

Question 12

Re-order level when demand is known and constant? (days)

Answer 12

lead time (days) × demand per day

Question 13

Return point Miller Orr model?

Answer 13

Lower limit + (⅓ × spread)

Question 14

Operating cycle?

Answer 14

inventory + Receivables - Payables

Question 15

Asset turnover?

Answer 15

Sales / Capital Employed

Question 16

Consumption during lead time?

Answer 16

Consumption per week * lead time

Question 17

Buffer (safety level) of inventory?

Answer 17

Reorder level - consumption during lead time

Question 18

What does overtrading do to current ratio?

Answer 18

Decreases it

Question 19

What does overtrading do to gearing ratio?

Answer 19

Increases it

Question 20

What does overcapitalisation do to current ratio?

Answer 20

Increases it

Question 21

What does overtrading to the working capital cycle?

Answer 21

Increases receivables, inventory and payables

Question 22

Calculate upper limit in Miller-Orr model?

Answer 22

Spread + lower limit

Question 23

Calculate annual finance cost?

Answer 23

Calculate original AR
Multiply %

Question 24

Cost vs rate (payables)

Answer 24

Cost formula uses multiplication
Rate formula also uses power

Question 25

Buffer inventory?

Answer 25

Re-order level - lead time

Question 26

Minimum inventory level?

Answer 26

Re-order level - (average usage * average lead time)

Question 27

Average inventory? (from order quantity)

Answer 27

(Order quantity / 2) + buffer inventory

Question 28

Ordering cost for inventory?

Answer 28

(Demand / EOQ OR order quantity) * Cost per order

Question 29

How is lead time calculated?

Answer 29

On a weekly basis

Question 30

Holding cost for inventory?

Answer 30

(EOQ OR order quantity/ 2) * Cost per order

Question 31

Non-recourse factoring for a company (treatment of bad debts)

Answer 31

Not relevant to the calculation

Question 32

How is buffer inventory treated in average inventory holding?

Answer 32

Added on, not divided

Question 33

Reduction in average inventory?

Answer 33

(average inventory 1 - average inventory 2) * purchase price

Question 34

Minimum inventory level?

Answer 34

Reorder level - (average usage per week * average lead time)

Question 35

Which working is the bulk purchase discount relevant for?

Answer 35

The purchase cost

Question 36

Does financing cost use receivables or credit sales working?

Answer 36

Receivables

Question 37

How to calculate net cost of an early settlement discount?

Answer 37

Annual cost of the discount - interest saved

Question 38

Which factoring is bad debt saved on?

Answer 38

Non-recourse

Question 39

What is meant by a binding constraint?

Answer 39

If at contribution equation , the resource used equals the resource available. Constraint is binding and a shadow price is calculated

Question 40

Demand elastic or inelastic for penetration pricing?

Answer 40

Elastic

Question 41

Demand elastic or inelastic for price skimming?

Answer 41

Inelastic

Question 42

Increase in price when price elasticity is greater than one (effect on revenue)

Answer 42

Decreases revenue