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A current ratio is a way of measuring liquidity in a business, or to put it in simpler terms how quickly a firm can raise cash to pay off debts in a crisis.
This current ratio is based on current assets (things a business owns and will sell within 1 year) and current liabilities (things a business owes like debts and will pay off in 1 year).
The ratio is calculated using the formula:
Current Assets
_____________
Current Liabilities
For example 150 / 100 would give 1.5:1
This ratio speaks to the accountant - it tells them if the business can meet its short-term liabilities (debts), or can it pay the suppliers so that they will continue to send stock to the shop (for example).
In very simple terms the business has 1.5 times the amount needed to pay the debts - this is good. An ideal would be between 1.5 and 2.
So your business has a current ratio of 7:1 oh dear. You can pay your debts (this is good) but your business has lots of cash sitting about that could be:
1) invested in new stock lines
2) Spent on advertising to drive up sales
3) invested in more experienced staff to help ensure the long term health of the business
This tells and potential investor that your business is flabby with cash and not being managed well. Any potential investor may steer well clear.
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How does high current ratio of a business affect a loan approval?
High current ratio indicates your company's ability to pay loans if granted. The ratio is obtained by dividing assets by liabilities. A ratio of 1 or higher means your company has high liquidity to pay off debts. Dama
What current ratio indicates?
Current Ratio is when you take your current assets divided by your current liabilities. This is one of the best known and most widely used ratios. Because current assets and liabilities are, in principle, converted to cash over the following 12 months, the current ratio is a measure of short-term liquidity. The unit of measurement is either dollars or times. For example, you could say ABC Corp has $1.50 in current assets for every $1 in current liabilities, or you could say that ABC Corp has its current liabilities covered 1.5 times over. To a creditor, the higher the ratio the better. To the firm, a high current ratio indicates liquidity, but it also may indicate and inefficient use of cash and other short-term assets. Absent some extraordinary circumstances, we would expect to see a current ratio of at least 1, because a ratio of less than 1 would imply a negative working capital number, which which over time could mean insolvency. Generally, a number closer to the 2 range would be most desirable for most industries.
Where are key financial ratios?
Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used:Liquidity ratiosAsset turnover ratiosFinancial leverage ratiosProfitability ratiosDividend policy ratiosLiquidity RatiosLiquidity ratios provide information about a firm's ability to meet its short-term financial obligations. They are of particular interest to those extending short-term credit to the firm. Two frequently-used liquidity ratios are the current ratio (or working capital ratio) and the quick ratio.The current ratio is the ratio of current assets to current liabilities:Current Ratio = Current Assets/Current LiabilitiesShort-term creditors prefer a high current ratio since it reduces their risk. Shareholders may prefer a lower current ratio so that more of the firm's assets are working to grow the business. Typical values for the current ratio vary by firm and industry. For example, firms in cyclical industries may maintain a higher current ratio in order to remain solvent during downturns.One drawback of the current ratio is that inventory may include many items that are difficult to liquidate quickly and that have uncertain liquidation values. The quick ratio is an alternative measure of liquidity that does not include inventory in the current assets. The quick ratio is defined as follows:Quick Ratio = (Current Assets - Inventory)/Current LiabilitiesThe current assets used in the quick ratio are cash, accounts receivable, and notes receivable. These assets essentially are current assets less inventory. The quick ratio often is referred to as the acid test.Finally, the cash ratio is the most conservative liquidity ratio. It excludes all current assets except the most liquid: cash and cash equivalents. The cash ratio is defined as follows:Cash Ratio = (Cash + Marketable Securities)/Current LiabilitiesThe cash ratio is an indication of the firm's ability to pay off its current liabilities if for some reason immediate payment were demanded.Asset Turnover RatiosAsset turnover ratios indicate of how efficiently the firm utilizes its assets. They sometimes are referred to as efficiency ratios, asset utilization ratios, or asset management ratios. Two commonly used asset turnover ratios are receivables turnover and inventory turnover.Receivables turnover is an indication of how quickly the firm collects its accounts receivables and is defined as follows:Receivables Turnover = Annual Credit Sales/Accounts ReceivableThe receivables turnover often is reported in terms of the number of days that credit sales remain in accounts receivable before they are collected. This number is known as the collection period. It is the accounts receivable balance divided by the average daily credit sales, calculated as follows:Average Collection Period = Accounts Receivable/Annual Credit Sales / 365The collection period also can be written as:Average Collection Period = 365/Receivables TurnoverAnother major asset turnover ratio is inventory turnover. It is the cost of goods sold in a time period divided by the average inventory level during that period:Inventory Turnover = Cost of Goods Sold/Average InventoryThe inventory turnover often is reported as the inventory period, which is the number of days worth of inventory on hand, calculated by dividing the inventory by the average daily cost of goods sold:Inventory Period = Average Inventory/Annual Cost of Goods Sold / 365The inventory period also can be written as:Inventory Period = 365/Inventory TurnoverOther asset turnover ratios include fixed asset turnover and total asset turnover.Financial Leverage RatiosFinancial leverage ratios provide an indication of the long-term solvency of the firm. Unlike liquidity ratios that are concerned with short-term assets and liabilities, financial leverage ratios measure the extent to which the firm is using long term debt.The debt ratio is defined as total debt divided by total assets:Debt Ratio = Total Debt/Total AssetsThe debt-to-equity ratio is total debt divided by total equity:Debt-to-Equity Ratio = Total Debt/Total EquityDebt ratios depend on the classification of long-term leases and on the classification of some items as long-term debt or equity.The times interest earned ratio indicates how well the firm's earnings can cover the interest payments on its debt. This ratio also is known as the interest coverage and is calculated as follows:Interest Coverage = EBIT/Interest Chargeswhere EBIT = Earnings Before Interest and TaxesProfitability RatiosProfitability ratios offer several different measures of the success of the firm at generating profits.The gross profit margin is a measure of the gross profit earned on sales. The gross profit margin considers the firm's cost of goods sold, but does not include other costs. It is defined as follows:Gross Profit Margin = (Sales - Cost of Goods Sold)/SalesReturn on assets is a measure of how effectively the firm's assets are being used to generate profits. It is defined as:Return on Assets = Net Income/Total AssetsReturn on equity is the bottom line measure for the shareholders, measuring the profits earned for each dollar invested in the firm's stock. Return on equity is defined as follows:Return on Equity = Net Income/Shareholder EquityDividend Policy RatiosDividend policy ratios provide insight into the dividend policy of the firm and the prospects for future growth. Two commonly used ratios are the dividend yield and payout ratio.The dividend yield is defined as follows:Dividend Yield = Dividends Per Share/Share PriceA high dividend yield does not necessarily translate into a high future rate of return. It is important to consider the prospects for continuing and increasing the dividend in the future. The dividend payout ratio is helpful in this regard, and is defined as follows:Payout Ratio = Dividends Per Share/Earnings Per Share
Why are liquidity ratios important in bank lending?
Businesses use a variety of performance evaluation measures to analyze the results of their actions. Investors perform a variety of calculations to review the actions of a particular company. Both company management and investors spend time focusing on the company's "liquidity." Liquidity considers the company's ability to pay its current obligations and its cash levels. Certain financial ratios provide important information regarding a company's liquidity.In general, the greater the coverage of liquid assets to short-term liabilities, the more likely it is that a business will be able to pay debts as they become due while still funding ongoing operations. On the other hand, a company with a low liquidity ratio might have difficulty meeting obligations while funding vital ongoing business operations.Liquidity ratios are sometimes requested by banks when they are evaluating a loan application. If you take out a loan, the lender may require you to maintain a certain minimum liquidity ratio, as part of the loan agreement. For that reason, steps to improve your liquidity ratios are sometimes necessary.When analyzing the financial health of a firm there is four different groups of ratios that the analyst will consider. The groups are liquidity ratios, financial leverage ratios, efficiency ratios, and profitability ratios. In analyzing liquidity ratios, how they are defined and who uses them will be discussed. Problems associated with liquidity ratios will be addressed along with adjustments that are to be made to these ratios. Analysts will then be able to make correct assumptions about the liquidity of a firm.The most used liquidity ratios are: ratios concerning receivables, inventory, working capital, current ratio, and acid test ratio. Other ratios related to the liquidity of a firm deal with the liquidity of its receivables and inventory. The ratios indicating the liquidity of a firm's receivables are days' sales in receivables, accounts receivable turnover, and account receivable turnover in days. Days' sales in receivables relate the amount of accounts receivable to the average daily sales on account. This is computed by gross receivables divided by average net sales per year. Short-term creditors will view this as an indication of a firm's liquidity. Internal analysts should compare it to the firm's credit terms to analyze if the firm is managing its receivables efficiently. The days' sales in receivables should be close to the firm's credit terms. Accounts receivable turnover indicates the liquidity of a firm's receivables. This is measured in times per year and is computed by net sales divided by average gross receivables. This figure can also be expressed in days by average gross receivables divided by average net sales for the year. Inventories are a significant asset of most firms; thus they are indicative of a firm's short-term debt paying ability. The liquidity of a firm's inventories can be analyzed through the use of the following ratios: days' sales in inventory, inventory turnover, and inventory turnover in days. In calculating days' sales in inventory the analyst would divide ending inventory by a daily average of cost of goods sold. The result is an estimate of the number of days that it will take for the firm to sell current inventory. Inventory turnover is calculated by cost of good sold divided by average inventory. This forecasts the liquidity of the inventory and is expressed as times per year. This formula can be revised by dividing average inventory by average daily cost of goods sold so that the turnover is expressed in the number of days. Creditors consider low inventory turnover as a liquidity risk associated with the firm. Management uses inventory turnover to utilize effective inventory control. If it is too high the firm may be losing sales due to not enough inventories. If too low there may be a problem with overstocking or obsolescence and the cost associated with carrying such inventory. Working capital is defined as current assets minus current liabilities. Analysts to determine the short-term solvency of a firm calculate this ratio. Management uses this ratio, since some loan agreements or bond indentures contain stipulations concerning minimum working capital requirements. A firm's current ratio is determined by current assets divided by current liabilities. This measures a firm's ability to meet is current liabilities out of its current assets. An average of two to one is usually the norm. A shorter operating cycle will result in a lower current ratio whereas; a longer operating cycle will result in a higher current ratio. The current ratio shows the size of the relationship between current assets and liabilities, enhancing the comparability between firms.The acid test ratio (Quick ratio) is computed by current assets minus inventory divided by current liabilities. Thus this relates the most liquid assets to current liabilities. This is the most stringent test of liquidity. The usual guideline for the ratio is one to one. Short-term creditors will use this as an indication of a firm's ability to satisfy its short- term debt immediately. The management of the firm will have a greater difficulty borrowing short-term funds if the firm has a low quick ratio. If the ratio is very low, it is an indication that the firm will not be able to meet its short-term obligations. When using liquidity ratios the analyst will start with receivables and inventory, if a liquidity problem is suggested further analysis using the current and quick ratio will be used and the analyst will form an opinion accordingly.Analysts use liquidity ratios to make judgments about a firm, but there are limitations to these ratios. The liquidity of a firm's receivables and inventories can be misleading if the firm's sales are seasonal and or the firm uses a natural business year. The analyst would then adjust the figures accordingly to compare with other firms. The valuation method used will have a major impact on the firm's liquidity of its inventory. Valuation of a firm's inventory under the Last-In-First-Out (LIFO) approach will cause an understatement of inventory with will carry over as an understated current ratio. The use of LIFO may cause unrealistic days' sales in inventory and a much higher inventory turnover. The analyst would take the valuation method used into account when comparing with other firms. One way to judge the liquidity of a firm is to use not only traditional liquidity measures but also consider certain cash flow ratios. In doing liquidity analysis cash flow information is more reliable than balance sheet or income statement information. The cash flow ratios that test for solvency and liquidity are: operating cash flow (OCF), funds flow coverage (FFC), cash interest coverage (CIC), and cash debt coverage (COC). Cash flow ratios determine the amount of cash generated over a period of time and compare that to short-term obligations. This gives a clearer picture if the firm has a liquidity problem in connection with its short-term debt paying ability. Operating cash flow is computed by dividing cash flow from operations by current liabilities. This shows the company's ability to generate the resources needed to meet current liabilities. The funds flow coverage ratio is computed by dividing earnings before interest, taxes plus depreciation and amortization (EBITDA) divided by interest plus tax adjusted debt repayment plus tax adjusted preferred dividends. This ratio will help determine if the firm can meet its commitments. A measurement of one from this ratio indicates that the firm can just barley meet its commitments, less than one indicates that borrowing is needed to meet current commitments. The cash interest coverage ratio is computed by the summation of cash flow from operations, interest paid, and taxes paid divided by interest paid. This will help the analyst determine the firm's ability to meet its interest payments. If the firm is highly leveraged it will have a low ratio and a ratio of less than one places serious concerns about a firm's ability to meet its interest payments. The cash debt coverage is calculated by operating cash flow minus cash dividends divided by current debt. This indicates the firm's ability to carry debt comfortably. The higher the ratio the higher the comfort level. All of the cash flow ratios are not uniform but vary by industry characteristics. The analyst would then adjust his assumptions accordingly to assess the liquidity of a firm.Businesses use a variety of performance evaluation measures to analyze the results of their actions. Investors perform a variety of calculations to review the actions of a particular company. Both company management and investors spend time focusing on the company's "liquidity." Liquidity considers the company's ability to pay its current obligations and its cash levels. Certain financial ratios provide important information regarding a company's liquidity.Bill Payment:A primary reason liquidity ratios require attention involve the company's ability to pay its bills. Liquidity ratios compare the current assets of a business to the current liabilities. The current assets represent the resources available for paying bills. Current liabilities represent the bills waiting to be paid. Investors want to see that companies pay their bills without struggling. Creditors want to see that the company holds enough financial resources to meet its current obligations as well as future obligations that may arise from business with the creditor. Future Investments:Businesses consider financial investments, such as purchasing new equipment or new product launches, as they plan their future strategy. Future investments require financial resources to pay for those investments. When a company holds enough liquid resources to fund its strategic plans, it requires no additional financing to pursue those investments. Liquidity ratios provide management with information regarding its financial resources and whether it needs to obtain additional financing. Dividends:Companies often provide a return to stockholders through cash or stock dividends. Cash dividends provide a direct payment to the stockholders. Stock dividends provide stockholders with additional shares of company stock. Companies usually pay stock dividends when they want to compensate the stockholders but lack the cash to make cash dividend payments. Companies use liquidity ratios to determine whether to pay cash dividends or stock dividends to stockholders. The liquidity ratios demonstrate the company's ability to make cash dividend payments. Cash Balance:A company's cash balance serves several purposes. It provides financial resources for the company to pay bills. It maintains a financial safety net for unexpected expenses or a reduction in revenues. And it builds cash pool to allow the company to take advantage of opportunities. The company uses liquidity ratios to determine the level of cash the company currently has and what level of cash it needs to have.
What is the optimal capital structure?
optimal capital stucture is that where the firm value is high and the wacc of the firm is low and that capital structure a firm can follow constantly and that capital stucture not become a burdon on firm.
Is 1.26 current ratio good?
It depends on the nature of business as well as the capital intensity of the business if business is capital intensive the high current ratio required otherwise it is not required to maintain high current ratio
How does high current ratio of a business affect a loan approval?
High current ratio indicates your company's ability to pay loans if granted. The ratio is obtained by dividing assets by liabilities. A ratio of 1 or higher means your company has high liquidity to pay off debts. Dama
What current ratio indicates?
Current Ratio is when you take your current assets divided by your current liabilities. This is one of the best known and most widely used ratios. Because current assets and liabilities are, in principle, converted to cash over the following 12 months, the current ratio is a measure of short-term liquidity. The unit of measurement is either dollars or times. For example, you could say ABC Corp has $1.50 in current assets for every $1 in current liabilities, or you could say that ABC Corp has its current liabilities covered 1.5 times over. To a creditor, the higher the ratio the better. To the firm, a high current ratio indicates liquidity, but it also may indicate and inefficient use of cash and other short-term assets. Absent some extraordinary circumstances, we would expect to see a current ratio of at least 1, because a ratio of less than 1 would imply a negative working capital number, which which over time could mean insolvency. Generally, a number closer to the 2 range would be most desirable for most industries.
Where are key financial ratios?
Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used:Liquidity ratiosAsset turnover ratiosFinancial leverage ratiosProfitability ratiosDividend policy ratiosLiquidity RatiosLiquidity ratios provide information about a firm's ability to meet its short-term financial obligations. They are of particular interest to those extending short-term credit to the firm. Two frequently-used liquidity ratios are the current ratio (or working capital ratio) and the quick ratio.The current ratio is the ratio of current assets to current liabilities:Current Ratio = Current Assets/Current LiabilitiesShort-term creditors prefer a high current ratio since it reduces their risk. Shareholders may prefer a lower current ratio so that more of the firm's assets are working to grow the business. Typical values for the current ratio vary by firm and industry. For example, firms in cyclical industries may maintain a higher current ratio in order to remain solvent during downturns.One drawback of the current ratio is that inventory may include many items that are difficult to liquidate quickly and that have uncertain liquidation values. The quick ratio is an alternative measure of liquidity that does not include inventory in the current assets. The quick ratio is defined as follows:Quick Ratio = (Current Assets - Inventory)/Current LiabilitiesThe current assets used in the quick ratio are cash, accounts receivable, and notes receivable. These assets essentially are current assets less inventory. The quick ratio often is referred to as the acid test.Finally, the cash ratio is the most conservative liquidity ratio. It excludes all current assets except the most liquid: cash and cash equivalents. The cash ratio is defined as follows:Cash Ratio = (Cash + Marketable Securities)/Current LiabilitiesThe cash ratio is an indication of the firm's ability to pay off its current liabilities if for some reason immediate payment were demanded.Asset Turnover RatiosAsset turnover ratios indicate of how efficiently the firm utilizes its assets. They sometimes are referred to as efficiency ratios, asset utilization ratios, or asset management ratios. Two commonly used asset turnover ratios are receivables turnover and inventory turnover.Receivables turnover is an indication of how quickly the firm collects its accounts receivables and is defined as follows:Receivables Turnover = Annual Credit Sales/Accounts ReceivableThe receivables turnover often is reported in terms of the number of days that credit sales remain in accounts receivable before they are collected. This number is known as the collection period. It is the accounts receivable balance divided by the average daily credit sales, calculated as follows:Average Collection Period = Accounts Receivable/Annual Credit Sales / 365The collection period also can be written as:Average Collection Period = 365/Receivables TurnoverAnother major asset turnover ratio is inventory turnover. It is the cost of goods sold in a time period divided by the average inventory level during that period:Inventory Turnover = Cost of Goods Sold/Average InventoryThe inventory turnover often is reported as the inventory period, which is the number of days worth of inventory on hand, calculated by dividing the inventory by the average daily cost of goods sold:Inventory Period = Average Inventory/Annual Cost of Goods Sold / 365The inventory period also can be written as:Inventory Period = 365/Inventory TurnoverOther asset turnover ratios include fixed asset turnover and total asset turnover.Financial Leverage RatiosFinancial leverage ratios provide an indication of the long-term solvency of the firm. Unlike liquidity ratios that are concerned with short-term assets and liabilities, financial leverage ratios measure the extent to which the firm is using long term debt.The debt ratio is defined as total debt divided by total assets:Debt Ratio = Total Debt/Total AssetsThe debt-to-equity ratio is total debt divided by total equity:Debt-to-Equity Ratio = Total Debt/Total EquityDebt ratios depend on the classification of long-term leases and on the classification of some items as long-term debt or equity.The times interest earned ratio indicates how well the firm's earnings can cover the interest payments on its debt. This ratio also is known as the interest coverage and is calculated as follows:Interest Coverage = EBIT/Interest Chargeswhere EBIT = Earnings Before Interest and TaxesProfitability RatiosProfitability ratios offer several different measures of the success of the firm at generating profits.The gross profit margin is a measure of the gross profit earned on sales. The gross profit margin considers the firm's cost of goods sold, but does not include other costs. It is defined as follows:Gross Profit Margin = (Sales - Cost of Goods Sold)/SalesReturn on assets is a measure of how effectively the firm's assets are being used to generate profits. It is defined as:Return on Assets = Net Income/Total AssetsReturn on equity is the bottom line measure for the shareholders, measuring the profits earned for each dollar invested in the firm's stock. Return on equity is defined as follows:Return on Equity = Net Income/Shareholder EquityDividend Policy RatiosDividend policy ratios provide insight into the dividend policy of the firm and the prospects for future growth. Two commonly used ratios are the dividend yield and payout ratio.The dividend yield is defined as follows:Dividend Yield = Dividends Per Share/Share PriceA high dividend yield does not necessarily translate into a high future rate of return. It is important to consider the prospects for continuing and increasing the dividend in the future. The dividend payout ratio is helpful in this regard, and is defined as follows:Payout Ratio = Dividends Per Share/Earnings Per Share
What is the ideal ratio for total debt ratio?
Basically there is no absolute plug number. It differs from one firm to another. Say for instance: a starting fast growth High-tech firm normally will have higher ratio than a mature profitable one. The same goes from industry to industry: transportation VS pharmaceuticals. Conclusion: each firms has its own unique dept ratio, but what matter is, how efficient the dept is managed.
What is management accounting explain ratio analysis in detail?
Financial ratios are useful indicators of a firm's performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy. Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used: • Liquidity ratios • Asset turnover ratios • Financial leverage ratios • Profitability ratios • Dividend policy ratios Liquidity Ratios Liquidity ratios provide information about a firm's ability to meet its short-term financial obligations. They are of particular interest to those extending short-term credit to the firm. Two frequently-used liquidity ratios are the current ratio (or working capital ratio) and the quick ratio. The current ratio is the ratio of current assets to current liabilities: Current Ratio = Current Assets Current Liabilities Short-term creditors prefer a high current ratio since it reduces their risk. Shareholders may prefer a lower current ratio so that more of the firm's assets are working to grow the business. Typical values for the current ratio vary by firm and industry. For example, firms in cyclical industries may maintain a higher current ratio in order to remain solvent during downturns. One drawback of the current ratio is that inventory may include many items that are difficult to liquidate quickly and that have uncertain liquidation values. The quick ratio is an alternative measure of liquidity that does not include inventory in the current assets. The quick ratio is defined as follows: Quick Ratio = Current Assets - Inventory Current Liabilities The current assets used in the quick ratio are cash, accounts receivable, and notes receivable. These assets essentially are current assets less inventory. The quick ratio often is referred to as the acid test. Finally, the cash ratio is the most conservative liquidity ratio. It excludes all current assets except the most liquid: cash and cash equivalents. The cash ratio is defined as follows: Cash Ratio = Cash + Marketable Securities Current Liabilities The cash ratio is an indication of the firm's ability to pay off its current liabilities if for some reason immediate payment were demanded. Asset Turnover Ratios Asset turnover ratios indicate of how efficiently the firm utilizes its assets. They sometimes are referred to as efficiency ratios, asset utilization ratios, or asset management ratios. Two commonly used asset turnover ratios are receivables turnover and inventory turnover. Receivables turnover is an indication of how quickly the firm collects its accounts receivables and is defined as follows: Receivables Turnover = Annual Credit Sales Accounts Receivable The receivables turnover often is reported in terms of the number of days that credit sales remain in accounts receivable before they are collected. This number is known as the collection period. It is the accounts receivable balance divided by the average daily credit sales, calculated as follows: Average Collection Period = Accounts Receivable Annual Credit Sales / 365 The collection period also can be written as: Average Collection Period = 365 Receivables Turnover Another major asset turnover ratio is inventory turnover. It is the cost of goods sold in a time period divided by the average inventory level during that period: Inventory Turnover = Cost of Goods Sold Average Inventory The inventory turnover often is reported as the inventory period, which is the number of days worth of inventory on hand, calculated by dividing the inventory by the average daily cost of goods sold: Inventory Period = Average Inventory Annual Cost of Goods Sold / 365 The inventory period also can be written as: Inventory Period = 365 Inventory Turnover Other asset turnover ratios include fixed asset turnover and total asset turnover. Financial Leverage Ratios Financial leverage ratios provide an indication of the long- term solvency of the firm. Unlike liquidity ratios that are concerned with short-term assets and liabilities, financial leverage ratios measure the extent to which the firm is using long term debt. The debt ratio is defined as total debt divided by total assets: Debt Ratio = Total Debt Total Assets The debt-to-equity ratio is total debt divided by total equity: Debt-to-Equity Ratio = Total Debt Total Equity Debt ratios depend on the classification of long-term leases and on the classification of some items as long-term debt or equity. The times interest earned ratio indicates how well the firm's earnings can cover the interest payments on its debt. This ratio also is known as the interest coverage and is calculated as follows: Interest Coverage = EBIT Interest Charges where EBIT = Earnings Before Interest and Taxes Profitability Ratios Profitability ratios offer several different measures of the success of the firm at generating profits. The gross profit margin is a measure of the gross profit earned on sales. The gross profit margin considers the firm's cost of goods sold, but does not include other costs. It is defined as follows: Gross Profit Margin = Sales - Cost of Goods Sold Sales Return on assets is a measure of how effectively the firm's assets are being used to generate profits. It is defined as: Return on Assets = Net Income Total Assets Return on equity is the bottom line measure for the shareholders, measuring the profits earned for each dollar invested in the firm's stock. Return on equity is defined as follows: Return on Equity = Net Income Shareholder Equity
What is non current assets to total assets ratio?
Fixed assets to total assets ratio describe about the percentage or number of time fixed assets are of total assets. It helps the management to find out that either they are maintaining proper fixed assets and current assets ratio or there may be any changes required in the ratio which is to be maintained because if they maintain high ratio it will affect the depreciation expense and ultimately net income as well.
Which configuration of bipolar junction transistor which will give both current gain and voltage gain?
high voltage gain :- common base since the ratio of output impedance to the input impermanence is very high in common base mode high current gain :-common collector since it is the ratio of Ie/Ib
What is some current information about obesity?
Current information about obesity suggests that it is still on the increase. Over 300 million adults world-wide are now obese the the figure is set to climb as high as 700 million by 2015. === ===
What is Non Current Assets to Total Assets?
Fixed assets to total assets ratio describe about the percentage or number of time fixed assets are of total assets. It helps the management to find out that either they are maintaining proper fixed assets and current assets ratio or there may be any changes required in the ratio which is to be maintained because if they maintain high ratio it will affect the depreciation expense and ultimately net income as well.
What are the advantages and disadvantages of a high leverage ratio?
disadvantages of a high leverage ratio in financial crisis
What is a High Ratio Cake?
A high-ratio (hi-ratio) cake is one that has a high ratio of sugar and liquid (usually eggs) to flour. High ratio cakes require a special shortening (called emulsified shortening) containing emulsifying agents to allow the mixture to hold such high amounts of sugar and liquids. Generally speaking, the process of making a high ratio cake includes blending your flour with emulsified shortening, then adding the liquids.
