This is a simple (no word count minimum, but needs to be answered clearly and concisely) question?In your opinion, which of the ratios are most important? Also, why is it important to perform a trend analysis of the ratios over a period of years?Liquidity RatiosCurrent ratio = Current assets/current liabilitiesQuick ratio = (Current assets-Inventories)/current liabilitiesIn general, the higher the current and quick ratios, the greater the liquidity (also known as solvency) of the firm.Asset Management Ratios Inventory turnover ratio = sales/inventoriesDSO = Receivables / average sales per dayFixed asset turnover ratio = sales/net fixed assetsTotal assets turnover ratio = sales/total assetsAsset management ratios, specifically the inventory turnover ratio, the fixed asset turnover ratio, and the total asset turnover ratio provide insight into how efficiently (or effectively) the firm’s managers are utilizing the company’s asset base. Generally speaking, high turnover ratios mean the company is being run more efficiently.Debt Management RatiosTimes interest earned ratio = EBIT/InterestIn the case of the debt ratio, a higher value means the firm relies on debt instruments (bonds or loans) to finance its asset base.Profitability RatiosProfit margin on sales = Net income/salesEarning power ratio = EBIT/total assetsReturn on Assets ratio = Net income/total assetsROE = Net income/common equityA high profit margin is positive, and suggests aggressive expense control. A high BEP ratio is also regarded as a positive indicator. BEP is a broad measure of the firm’s the profitability of assets.Market Value RatiosPE = Price per share/earningsCash flow = Price per share/cash flow per shareBook value = Common equity/shares outstandingIn general, higher P/E ratios are seen as a positive signThe post Business Finance Ratios first appeared on https://topgradeassignments.org.Business Finance Ratios was first posted on October 16, 2020 at 10:03 am.©2019 “Submit Your Assignment”. Use of this feed is for personal non-commercial use only. If you are not reading this article in your feed reader, then the site is guilty of copyright infringement. Please contact me at support@topgradeassignments.org “Is this question part of your assignment? We Can Help!”
Back