Current Ratio Essay

1) Current balanceThe proportion is mainly used to give an idea of the callers ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the play along is of paying its obligations.2) Quick RatioAn indicator of a companys short-term liquidity. The chop-chop ratio monetary standards a companys ability to meet its short-term obligations with its most liquid assets. For this reason, the ratio excludes inventories from current assets3) Asset Turnover RatioThe union of sales or revenues gene layd per dollar 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/nitty-gritty 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 varies widely from one industry to the next, comparisons be only meaningful when they argon made for different companies in the same sector.4) Fixed 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 inventory is sold and replaced over a power point. The geezerhood in the period can then be split by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or inventory turnover days. This ratio should be compared againstindustry averages. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies every strong sales or ineffective buying. High inventory levels are unhealthy because they represent an investment with a rate of return 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 delineate as the ratio of total debt to total 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 such as utilities and pipelines having much higher debt ratios than other industries uniform technology. In the consumer lending and mortgage businesses, debt ratio is defined as the ratio of total debt service obligations to gross annual income.7) Debt Equity RatioA measure of a companys financial leverage calculated by dividing its total liabilit ies 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 volatilizable earnings as a result of the additional interest expense.8) Equity MultiplierThe ratio of a companys total assets to its stockholders equity. The equity multiplier is a measurement of a companys financial leverage. Companies finance the purchase of assets either through equity or debt, so a high equity multiplier indicates that a larger portion of asset financing is being done through debt. The multiplier is a interlingual rendition 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 actually keeps in earnings. Increased earnings are good, but an increment does not mean that th e 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 lower 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 all important(p) to note that the average DSI varies from one industry to another. Here is how the DSI is calculatedAlso known as days inventory outstanding (DIO).This measure is one routine of the cash conversion cycle, which represents the process of turning 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 p ayment on accounts receivable, while the second measures how long it takes a company to pay off its accounts payable.