I need wide understanding about ratio analysis(e.g. liquidity, gearing, profitability, etc.)with examples and long precised description. No cutted material please because they dont link together!!!!minimum1200 words.
I approciate it, i need to get a good explanation
Liquidity Analysis Ratios : These ratios determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. The two most popular are current ratio and quick ratio.
- Current Ratio: A current ratio is used to determine whether a not a company has enough resources to cover its current debt. Generally, you want this number to be higher than 1 and equal to or higher than the industry average. The formula is Total current assets (Sum of cash, inventory, accounts receivable) divided by Total current liabilities (Sum of account payable, notes payable and other current liability). For example, if you get 1.29, it means that for every $1 of current liability, Reed has $1.29 available in current assets.
- Quick Ratio: Quick ratio has the same function as current ratio. The difference is that inventory is not included in the current assets portion. Inventory is excluded because it cannot be converted to cash as easily as other current assets. The formula is Current assets minus inventories divided by current ...