Ratios

What does a high Profit Margin indicate?

That the company is efficient at Cost Controls, and converting its revenue into actual profit.

What is another name for the Quick Ratio?

The Acid Test.

Which Income statement has all of the information for the four key ratios?

The Balance Sheet

What is another name for the Debt to Worth Ratio?

The Leverage Ratio

In this Ratio, the Assets are considered to be "Quick."

The Quick Ratio.

How can you improve the Current Ratio?

1) Increase Current Assets, or 2) Decrease Current Liabilities

Name the Four key Business Ratios?

1) Quick Ratio 2) Current Ratio 3) Working Capital 4) Debt to Worth Ratio

What is a satisfactory range of the Quick Ratio?

.50 to 1

What assets are considered in the Quick Ratio?

1) Cash 2) Stocks 3) Bonds 4) Accounts Receivables, and no inventory.

What is a satisfactory range of Return on Equity (R O.E.)?

10 to 12% is average. 12 to 15% is desirable. Higher than 15% is great.

What is a satisfactory range of the Current Ratio?

2

What does the Debt to Worth Ratio generally indicate?

A company's Solvency.

What is the formula for the Quick Ratio?

Current Assets Minus Inventory ÷ Total Current Liabilities.

What is a satisfactory range of Working Capital?

For existing businesses, the amount of cash on hand should cover 3 months of operational expenses. For Startup Businesses, the amount of cash on hand should cover 6 months of operational expenses.

What is a satisfactory range of the Debt to Equity Ratio?

Ideally 1, but no higher than 1 1/2.

What does the Debt to Worth Ratio measure?

It shows how dependent a company is on Debt Financing, as compared to Owner's Equity.

What is the formula for Return on Equity (R.O.E.)?

Net Income ÷ Shareholders Equity

What is the formula for Working Capital?

Total Current Assets minus Total Current Liabilities.

What is the formula for the Current Ratio?

Total Current Assets ÷ Total Current Liabilities.

What is the formula for the Debt to Worth Ratio?

Total Liabilities ÷ Net Worth.