Hi, does anyone know the level of knowledge required for the ratios in the FSA section? Do we need to know every ratio or just a brief overview of a few more important ones. SS8 is killing me slowly…
I would say every ratio is fair game, however the major one’s, basically DuPont Framework you should know cold. Questions will most likely involve intuitively understanding what happens to the ratios if assets or liablities or whatever makes up the ratio is overstated or understated. It’s pretty rare that they will give a paragraph of meaningless info and ask u to calculate ratio xyz.
Like BruinBanker said, you need to know the Dupont framework cold; turn it, twist it, mix it until you have all the moving parts at your finger tips. The other ratios are pretty straightforward and you can always derive them whenever you need them as long as you understand the concepts behind them (the concepts are actually more important than the ratios themselves).
Thanks guys. I’ll keep that in mind!
Make sure you can answer questions like: If PPE increases the current ratio and quick ratio respectivly: A. Both go up B. Current goes down; Quick stays the same C. Current stays the same; Quick goes down D. Both go down They will really test to make sure you not only know the formula, but also which financial stmt items are included in the formula.
Choice E: If Property, Plant and Equipment increases the current ratio and quick ratio is unaffected.
I could argue that an increase in PPE would either decrease current assets or increase current liabilities - which would affect these ratios; But the fact is I’m just rusty and typed the example up to fast. But you get the idea - know it!
PPE is a long term asset - so it would not affect either Current Assets or Current Liabilities. Fin - I think you are talking about the Long Term Leases - where Current portion of Long Term Lease Liab would increase Current Liabs. – and hence affect both the Current and Quick Ratios.
If you paid cash for the LTA then the current ratio would decrease. If you took out a loan, the current ratio would decrease as well, right? The current portion of the loan would increase current liabilities.
Analyze_This Wrote: ------------------------------------------------------- > If you paid cash for the LTA then the current > ratio would decrease. If you took out a loan, the > current ratio would decrease as well, right? The > current portion of the loan would increase current > liabilities. Current assets would decrease and current liabilities would increase if the LTA was financed partly by cash and partly by loans.