Analyzing Financial Statement
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Solution Summary
Current ratios are used to explain the organization's ability to pay back short term liabilities with short term assets. What this means is that the company can pay back its debt with cash, inventory and receivables. In a nutshell, it shows if the organization can turn its product into cash.
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Analyzing Financial Statements
Current Ratio
Current ratios are used to explain the organization's ability to pay back short term liabilities with short term assets. What this means is that the company can pay back its debt with cash, inventory and receivables. In a nutshell, it shows if the organization can turn its product into cash.
Solvency Ratios
This is a term used to determine if an organization can meet its long term obligations. This ratio measures the size of the company after taxes have been paid, non-cash depreciation expenses as compared to the organization's total debt obligations. In other words, it shows if the organization can meet its obligations to pay its debt. A reasonable solvency ratio is usually at 20% or higher. This can be compared to your credit score in that the higher your credit score is, the more likely you are to pay your debts; conversely, the higher the solvency ratio is, the more likely the organization will be able to pay its debt.
Contribution Ratio
The contribution ratio, also known as the Contribution Margin Ratio, is the percentage of contribution over sales, which can be calculated from the unit contribution over unit price or total contribution over total sales.
Management Expense Ratio
The management expense ratio, also known as the expense ...
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