Liquidity Financial Ratio Review Exercise Essay

1). Liquid ratios include current ratios, quick ratios, debt to equity ratios, financial leverage, and key ratios, (Morning Star, 2013, p. 1). Ford has been maintaining a current ratio of 2.11 from 2012 to the latest quarter. This ratio increased during the period of 2004, however, decreased in 2008. Ford reported a decrease in their current ratio from 2010 to 2011, and again in 2012 (Morning Star, 2013, p. 1). The same can be said about quick ratios; the ratio stabilized at 2 for two years. The…

This ratio is used to determine the amount of net profit for each dollar of sales that remains after subtracting all expenses. Example: a net profit margin of 0.084 indicates that 8.4% of each sales dollar remains after all expenses are paid. The ROA ratio is calculated by taking the net earnings available to common stockholders (net income) and dividing it by total assets. This ratio is used to determine the amount of income each dollar of assets generates. Example: an ROA ratio of 0.0568 indicates…

in growth industries have been greater. Price earnings ratio (P/E) In general, the higher the ROI and rate of earnings growth, the higher the P/E. . In the past, for a very long period of time P/E ratios in the range of 12 to 18 were consider good P/E ratios for a company. In recent years, the 12 to 18 values have been abandoned as a norm and what can be considered the norm now is under debate. Sample Companies' Profitability Ratios ROI for Sample CO. is $350 / $7,196 = 4.8% using net income…

Working capital to total assets ratio that measures a firm’s ability to pay off its short-term liabilities and is calculated by subtracting current liabilities from current assets divided by total assets. The retained earnings to total assets ratio that measures a firm’s use of its total asset base to generate earnings is also used. It is important to note that retained earnings can be easily manipulated distorting the final calculation. The third financial ratio used by the Z score formula is the…

5.99 4 6.83 6.59 Liquidity Indicators 01/30/2004 01/31/2003 02/01/2002 02/02/2001 01/28/2000 Quick Ratio 0.81 0.81 0.82 1.27 1.3 Current Ratio 0.98 1 1.05 1.45 1.48 Working Capital/Total Assets (0.01)…

Think particularly about the turnover ratios, the profit margin, and Du Pont equation. Profit margin is the ratio between revenue and income. Business with higher profit margin have lower cost of sales and therefore a high profit while business with lower profit margin have higher cost of sales. Thus businesses with a low margin needs to have high volume to sales to make up for the low margin. Turnover ratios show how many times a year company is replacing their inventories or collecting their debtors…

A number of problems with inventory valuation can contaminate the current ratio. An obvious accounting problem occurs because organizations value inventories using either of two methods, last in, first out (LIFO) or first in, first out (FIFO). Under the LIFO method, inventories are valued at their old costs. If the organization has a substantial quantity of inventory, some of it may be carried at relatively low cost, assuming some inflation in overall prices. On the other hand, if there has been…

investment. d. Calculate the 2011 debt, times-interest-earned, and EBITDA coverage ratios. Debt ratio = Total liabilities / total assets = (3,516,952 – 1,977,152) / 3,516,952 = 43.8 % Ratio Analysis ------------------------------------------------- 2009 2010 2011E Industry Average Debt ratio 54.8% 80.7% 43.8%…

It is an inclusion to either the balance sheet or the income statement and not a stand-alone financial statement. Importance of Financial Statements Financial statements have a significant impact on the successfulness of a company. Depending on whether you’re an investor, creditor or manager, the information that is most crucial will depend on who you are. An investor is concerned with the bottom line and the overall value and growth of a company. A company’s earnings and revenue can be compared…

due to the fact that inventory and accounts receivable are left out of the equation. Based on the cash ratio, this company carries a low cash balance. This may be an indication that they are aggressively investing in assets that will provide higher returns. We need to make sure that we have enough cash to meet our obligations, but too much cash reduces the return earned by the company. Cash ratio=(cash+ marketable securities)/current liabilities= 20.56/108.82 =0.19 Inventory turnover in days is…