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Financial Accounting : Liquidity, Profitability, Solvency Ratios

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What do the following classes of ratios measure? (a) Liquidity ratios. (b) Profitability ratios. (c) Solvency ratios.

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Liquidity ratios indicate how well the franchise meets its short-term debts or financial obligations. the most commonly used is the current ratio.

The current ratio is current assets divided by current liabilities with both figures coming from the balance sheet. This relationship illustrates the ability of the franchisor to pay current debt using only current assets ( cash, inventory, accounts receivable ). The higher this ratio, the better the franchisor's ability to pay off these short-term liabilities or debts.
Current Ratio = Current ...

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See Also This Related BrainMass Solution

Irregular items, accounting change, horizontal analysis, liquidity & solvency ratios

1. What are examples of irregular items? How does a change in accounting principles affect the financial statements? Who in the organization is responsible for the application of a change in an accounting principle? Why?

2. What is horizontal analysis? What is the value in using horizontal analysis? Why would a company use this analysis? What does this analysis tell you?

3. What is the liquidity ratio? Provide specific examples

4. What is the solvency ratio? What are some specific examples?

5. What is the profitability ratio? What are some specific examples?

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