Financial ratios and a company's performance
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If you owned your own company or were a leader of a business, what three financial ratios would you consider are the most important in evaluating your organization's performance and why?
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Solution Summary
This solution provides a discussion of the author's choice of three ratios to use for a company's financial evaluation. The importance in evaluating an organization's performance and why is determined.
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Financial ratios to show organization performance
I would choose current ratio, debt ratio, and profit margin analysis.
Current ratio helps to determine if the company's short-term assets such as cash, cash equivalents, receivables, and inventory (and marketable securities) would be sufficient to cover or pay off the short term liabilities of the company if necessary. Those considered short-term liabilities would include taxes, notes payable, the current portion of long-term debt, payables in general, and accrued expenses. It helps to determine if the current liquid assets can cover the current liabilities needs. The ...
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