Liquidity Ratios Are Defined As A Class Of Financial Metrics

900 WordsAug 25, 20154 Pages
Liquidity ratios are defined as a class of financial metrics that is used to determine a company 's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debt (Liquidity Ratios, 2006). In simple terms this states for every dollar of current debt FedEx has, they have $1.96 to pay it off. Pertaining to FedEx, each of the ratios have significantly increased from the previous year. This may be contributed to the increase in current assets, accounts receivable and cash on hand. This change is a positive effect toward FedEx, supporting increased liquidity for the company. Asset Turnover Ratios: Asset turnover or efficiency ratios are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity and the general use of inventory and machinery (Efficiency Ratios, 2003). Considering these ratios, all three have maintained or became stagnant over time. The collection period ratio has increased slightly and isn 't considered a good thing. Even with an increase in average daily sales, this can 't counter the increase in accounts receivables which may be the reason for the collection issue. Though the increase is minimal, its still shows concern. Accounts receivable ratios shows a slight

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