What are the different categories of ratios
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What are the different categories of ratios? Which category of ratios is of the most importance to a bondholder? Why? Which category of ratios is of the most important to a stockholder? Why? In your personal investments, which ratio is the most important to you? Why?
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Solution Summary
The different categories of ratios are examined. Why ratios are important in personal investment is determined.
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The different categories of ratios are Liquidity ratios, Asset Management ratios, Debt Management ratios, and Profitability ratios.
The Liquidity, Asset management, and the Debt management ratios are most important category of ratios to my personal investments. This is because my personal investments could be buying a vehicle for company's use. I may not be able to buy this vehicle if customers are paying their outstanding receivables slow or that the company does not pay off it debts as they fall due, increasing the debt ratio. Consequently, the bank may not make the loan for my company.
Liquidity ratios show the relationship of a firm's or a division's cash and other current assets to its current liabilities (Brigham & Houston, 2007). These types of ratios include current ratio and quick or acid test ratio. Current ratio is calculated by dividing current assets by current liabilities. It indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future. Quick or acid test ratio is ...
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