Liquidity ratios

Introduction to Financial Statements in Power BI

Nikisha Alcindor

Data Scientist and Investor

Performance measurements

Key Performance Indicators (KPIs) - set of measurements used to determine a company's performance.

  • Determined by the firm
  • Useful if well-defined

Image of an amortization schedule

1 https://www.investopedia.com/ask/answers/06/amortizationvsdepreciation.asp
Introduction to Financial Statements in Power BI

Financial ratio analysis

The relationship among selected items of financial statement data.

  • Liquidity ratios
  • Profitability Ratios

Image of coins, with the foreground showing line chart trending upwards

1 Weygandt, Jerry J., et al. Accounting Principles, John Wiley & Sons, 2015.
Introduction to Financial Statements in Power BI

Liquidity ratios

  • Short-term ability of the company to pay obligations
  • Example:
    • Every month - pay rent, student loan, car loan
    • Liquidity - ability to pay these bills
  • Three main liquidity ratios:
    • Current ratio
    • Acid-test
    • Inventory Turnover

Image of a pile of man with a pile of money

Introduction to Financial Statements in Power BI

Current ratio

  • Compares current assets to current liabilities
  • Measures short-term ability to pay debt

The current ratio equation

Example current ratio

Picture of Larry's Automotive Balance Sheet

1 Weygandt, Jerry J., et al. Accounting Principles, John Wiley & Sons, 2015.
Introduction to Financial Statements in Power BI

Acid-test ratio

  • Measures short-term liquidity

Acid test Ratio Equation

Acid Test Ratio Example

Balance sheet with items invested

1 Weygandt, Jerry J., et al. Accounting Principles, John Wiley & Sons, 2015.
Introduction to Financial Statements in Power BI

Inventory turnover

  • Measures the number of times the inventory is sold during a certain period.

Inventory Turnover Equation

Equation for Inventory Turnover Example

  • Days in Inventory365 / 2.3 = Every 159 days

Image of Balance Sheet and Income Statement

1 Weygandt, Jerry J., et al. Accounting Principles, John Wiley & Sons, 2015.
Introduction to Financial Statements in Power BI

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Introduction to Financial Statements in Power BI

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