Financial Ratios Serve An Analytical Purpose

706 WordsMay 10, 20163 Pages
Each of these financial ratios serve an analytical purpose to the financials of a company. The current ratio measures a company’s ability to pay off their obligations. This includes long term and short term. The acid test ratio is an indicator of whether a company has enough short term assets to cover its immediate liabilities. Times interest earned is a ratio that measures a company’s ability to meet all of its debt obligations. Profit margin is expressed as a percentage and measures how much of each dollar of a sales a company will keep in their earnings. Total asset turnover is a ratio that measures the efficiency of the use of resources within a company. It measures the ability to generate sales through the use of the company’s assets. Inventory turnover is a ratio to measure how quickly a company’s inventory is sold. It also measures how effectively investing into inventory is used within the company. Inventory turnover helps figure out if obsolete inventory is present or if pricing problems exist. Investors can learn about RNA’s financial stability and operating efficiency with the help of these financial ratios. With the use of the current ratio, investors can see that RNA’s has been declining for the past three years. It went from 1.62 to 1.57. Although these numbers are below the industry average for current ratio, the declining numbers is not yet a major concern for the company. This does not mean that the company should not keep an eye on it though. This is
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