Current Ratio Essay

1) menses symmetryThe dimension is mainly used to give an idea of the go withs mightiness to soften back its short-term liabilities (debt and payables) with its short-term assets (cash, strain, receivables). The higher(prenominal) the current dimension, the a lot capable the corporation is of paying its obligations.2) Quick ratioAn indicator of a gilds short-term liquidity. The quick affinityality whole tones a companys ability to meet its short-term obligations with its almost liquid assets. For this reason, the ratio excludes inventories from current assets3) Asset Turnover RatioThe enume judge of sales or revenues generated per dollar mark of assets. The Asset Turnover ratio is an indicator of the efficiency with which a company is deploying its assets. Asset Turnover = Sales or Revenues/Total AssetsGenerally speaking, the higher the ratio, the better it is, since it implies the company is generating more revenues per dollar of assets. But since this ratio var ies widely from one industry to the next, comparisons are simply meaningful when they are made for different companies in the same sector.4) unbending Turnover RatioA financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a companys ability to generate net sales from fixed-asset investments specifically property, plant and equipment (PP&E) net of depreciation. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues.The fixed-asset turnover ratio is calculated as5) Inventory Turnover RatioA ratio showing how many times a companys catalogue is sold and replaced over a period. The days in the period sess then be divide by the inventory turnover mandate to calculate the days it takes to sell the inventory on hand or inventory turnover days. This ratio should be compared againstindustry averages. A impression turnover implies poor sales and, therefore, excess i nventory. A high ratio implies either strong sales or ineffective buying. High inventory levels are unhealthy because they represent an investment with a rate of show of zero. It also opens the company up to trouble should prices begin to fal6) Debt RatioA financial ratio that measures the extent of a companys or consumers leverage. The debt ratio is defined as the ratio of wide-cut debt to resume assets, expressed in percentage, and can be interpreted as the proportion of a companys assets that are financed by debt.The higher this ratio, the more leveraged the company and the greater its financial risk. Debt ratios vary widely across industries, with capital-intensive businesses much(prenominal) as utilities and pipelines having much higher debt ratios than other industries like technology. In the consumer bestow and mortgage businesses, debt ratio is defined as the ratio of marrow debt utility obligations to gross annual income.7) Debt Equity RatioA measure of a companys fi nancial leverage calculated by dividing its total liabilities by stockholders equity. It indicates what proportion of equity and debt the company is using to finance its assets.A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional invade expense.8) Equity MultiplierThe ratio of a companys total assets to its stockholders equity. The equity multiplier factor is a measurement of a companys financial leverage. Companies finance the purchase of assets either by dint of equity or debt, so a high equity multiplier indicates that a larger portion of asset financing is being through through debt. The multiplier is a variation of the debt ratio.9) Net Profit RatioA ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of salesa company rattling keeps in earnings. Increased earni ngs are good, but an increase does not mean that the profit margin of a company is improving. For instance, if a company has costs that have increased at a greater rate than sales, it leads to a inflict profit margin. This is an indication that costs need to be under better control.10) Days InventoryA financial measure of a companys performance that gives investors an idea of how long it takes a company to turn its inventory (including goods that are work in progress, if applicable) into sales. Generally, the lower (shorter) the DSI the better, but it is important to note that the average DSI varies from one industry to another. here is how the DSI is calculatedAlso known as days inventory bully (DIO).This measure is one part of the cash conversion cycle, which represents the process of round raw materials into cash. The days sales of inventory is the first stage in that process. The other two stages are days sales outstanding and days payable outstanding. The first measures how long it takes a company to receive honorarium on accounts receivable, while the second measures how long it takes a company to pay off its accounts payable.