Ratio for the Job

The Right Ratio for the Job An effective approach for checking on the overall performance of an enterprise is to use key financial ratios. Ratios help indicate possible strengths and weaknesses in a company's operations. Key ratios are calculated from selected items on the profit and loss statement and the balance sheet. Three categories of financial ratios are liquidity, leverage, and profitability. Each of these categories has unique ratios that are used to consider the financial health of an organization. In this exercise, you will consider these ratios and match them to their respective categories. In addition, you will consider the kinds of questions each of these ratios can help answer. The goal of this activity is to explain the key financial ratios used in measuring an organization's performance. This activity is important because managers need to know what each key financial ratio measures Match the specific ratios to the appropriate situation.

(next 3 questions)

_____ measure progress toward performance goals and apply corrective measures as needed to ensure that performance meets objectives.

Bureaucratic control systems

I'd really like to know if and when we can pay off our short-term debts. (Ralph)

Current ratio

Before I invest in this company, I'd like to know how much of the company has been funded by credit versus the sale of stock. (Louise)

Debt-equity ratio

Which ratio is considered a leverage ratio?

Debt-to-Equity

How much additional revenue will we need to offset the money we spend to increase capacity? (Edward)

Return on investment

Which ratio is considered a liquidity ratio?

Which ratio is considered a liquidity ratio?