Debt Ratio And Total Debt

Total asset turnover : This ratio measures the efficiency of a company’s use of its assets

The current ratio shows the short-term debt-paying ability of the company also known as liquidity ratio. Components of the current ratio are current assets and current liabilities. To find the current ratio, divide current assets by current liabilities. For example if a current ratio was 2:1, then that company would be able to pay off its short term debt easily. But you should also look at the types of debt the company has because some assets might be larger. For the current ratio a rule of thumb is the ratio should be around 2:1. The company wants to at least make sure that the value of the current assets covers at least the amount of the short-term obligations. In 2013 the current ratio is 1.75 and in 2014 the current ratio is 1.8. This is showing a favorable

Asset turnover depicts investment efficiency, because it shows how many sales dollars are generated for every dollar invested in the company’s assets. Lowe’s had relatively lower asset turnover ratios than Home Depot because their recent investment in PP&E.

|Ratio |Numbers from Arcadia financial |Result |Is it a liquidity, |Define the ratio and explain what the result shown in Column 3 means to the organization. Do not forget to |

Days in inventory is a "measure of the average number of days inventory is held; calculated by dividing 365 by inventory turnover ratio" (Kimmel et al, 2007, p. 292).

This ratio takes into consideration the current assets and current liabilities from the balance sheet

Debt ratio - The Debt/Equity ratio is a measure of a company 's financial leverage and indicates what proportion of equity and debt the company is using to finance its

7. Debt-to-Equity Ratio: We can find this by taking total debt divided by total equity. This ratio analysis measures/shows a company’s financial leverage.

Solvency ratios: The solvency ratios debt to total assets ratio and times interest earned tells creditors if a company will be able to pay maturing debt and interest. Total liabilities divided by total assets is the debt to total assets ratio. Creditors will determine if a company can pay the maturing debt by the lower the percentage of the debt to total assets ratio the more likely it will be able to pay its debts. The times interest earned is income before income taxes and interest expense divided by interest expense. The result of this ratio will tell creditors and investors the company’s ability to pay interest as it comes due. The higher the result of times interest earned the easier it is for the company to pay their interest.

Debt-to-equity ratio is a measure of a firm’s solvency calculated as total debt divided by shareholders equity.

When comparing the debt-to-assets ratio of McDonalds and Wendys, you have to divide the firms total liabilities by their total assets. Essentially, the debt-to-assets ratio is the primary indicator of the firms debt management. As the ratio increases or decreases, it indicates the firms changing reliance on borrowed resources. The lower the ratio the more efficient the firm will be able to

Abbott’s fixed asset and total asset turnover ratios can tell us how well the firm uses its assets to generate revenue. The fixed asset ratio provides the proportion of sales to fixed assets and tells us how much revenue is

The final ratio we will analyze is the average collection period which measures the time it takes a firm to receive payments after a sale has been made. The average collection period was 55 days for 2001 and 42 days for 2000. While these numbers seem to be very high the reader needs to remember that they are dealing with a large ticket item and financing is usually arranged and payments from the finance company could take more time than cash payments that are normal in the traditional retail marketplace.

Long term creditors and shareholders are interested in this part of ratios and very carefully to deal with it. It evaluates how the company is using or managing its debt. Debt asset ratio and times interest earned and times interest earned will be calculated in

Debt ratio helps in comparing total assets and total liabilities. If you have more liabilities it means you have lesser equity and therefore an increased leverage position.