Financial Ratios Used in Businesses
Not what you're looking for?
Define the main categories of ratios used in analysis and provide one example of each (with the equation).
Purchase this Solution
Solution Summary
This is a description of the various financial ratios that businesses use to determine its stability. Examples and illustrations are included.
Solution Preview
There are many category division systems for financial ratios. One system divides ratios into two categories: solvency and profitability. Other systems have as many as five categories: leverage, liquidity, operating efficiency, profitability, and solvency. Any system of categorization will work, as long as the information can help the business to find out useful ways to maintain itself financially.
The system that is described here has four categories:
1. Liquidity is a measure of the business' ability to pay its short-term debts (which are due in less than than 1 year). This is the first set of ratios that can determine its ability to avoid bankruptcy. A basic example of a ratio in this category is the current ratio, which is the current assets divided by the current liabilities. What is desired is a result that is greater than 1, and as high a number as possible. Illustration: 1000/600 - 1.67
2. Profitability measures the return on an investment of a business' capital assets. It can also be a measure of the financial cushion per dollar of the gross profits of its ...
Education
- MEd, Grand Canyon University
- MBA, University of Phoenix
Recent Feedback
- "Thank you. GJ"
- "thank you! there was a lot of information in this outline and to reduce it to a summary was difficult. I appreciate your time, effort, and attention to the details."
- "This is a perfect example of what is considered as scholarly work and great presentation. Thanks I can finally say expert "YESSSSSSSSSSSS" "
- "Thank you so much, Roberta, great response to help me fulfill this assignment."
- "Thank you"
Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.
Organizational Leadership Quiz
This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.