Total Debt Ratio “The total debt ratio measures the extent to which the firm finances its assets from sources other than the stockholders. The higher the total debt ratio, the more debt the firm has in its capital structure” (Parrino, Kidwell, & Bates, 2012). Below is a three year breakout of UA’s total debt ratio.
This paper examines financial ratio analysis by defining, the three groups of stakeholders that use financial ratios, the five different kinds of ratios used and their applications, the analytical tools used in analysis, and finally financial ratio analysis limitations and benefits.
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 assets. A high number indicated that the company is
There are various methods or techniques used in analyzing financial statements, such as comparative statement, trend analysis, common- size statement, schedule of changes in working capital, fund flow analysis, cost - volume profit analysis. The ratio analysis is one of the most powerful tools of financial analysis. It is the process of establishing and interpreting various ratios (quantitative relationship between figures and groups of
Financial ratios have proven to be a useful tool for effective financial management and planning. Primarily known for improving the understanding of financial results and trends over time, financial ratios are a unique way to provide a quantitative analysis to communicate overall organizational performance. This tool is useful for managers to focus in on the company’s strengths and weaknesses from which strategies and operations can be formed. Investors are also commonly known to use ratios to measure results against other companies to make appropriate judgments regarding management effectiveness and mission impact. For ratios to be deemed meaningful and useful, they require reliable and accurate calculated information. This is simple
Ratio analysis provides an indication of a company's liquidity, gearing and solvency. But ratios do not provide answers; they are merely a guide for management and others to the areas of a company's weaknesses and strengths (Palat 1999).
Ratio analysis is used to evaluate relationships among financial statement items. The ratios are used to identify trends over time for one company or to compare two or more companies at one point in time. Financial statement ratio analysis focuses on three key aspects of a business: liquidity, profitability, and solvency.
The debt to assets ratio is a pointer of the quantity of a company's assets that are being financed with debt, rather than equity. A ratio greater than 1 indicates that a large amount of assets are being funded with debt, while a low ratio indicates that the mass of asset money is coming from equity. The ratio is used to determine the financial threat of a business.
The liquidity ratio or quick ratio according to Sobel, M “MBA in a nutshell”, is another measure of short-term solvency, in relative terms. This is considered a conservative indicator, according to Sobel, M “MBA in a nutshell”, given that the assets represented in the numerator of the ratio do not include inventory, which is difficult to liquidate quickly. The formula that expresses this is:
In measuring the companies’ liquidity we examine the current and quick ratio. The current ratio is an indication of a
Ratio analysis is generally used by the company to provide some information on how the company has performed during that year, so that the parties involved including shareholders, lenders, investors, government and other users could make some analysis before making any further decision towards that particular company. As mentioned by Gibson (1982a cited in British Accounting Review, 2002 pg. 290) where he believes that the use of ratio analysis is such an effective tool to evaluate the company’s finance, and to predict its future financial state. Ratios are simply divided in several categories; these are the profitability, liquidity, efficiency and gearing.
When evaluating the company’s profitability, we pay attention to the following ratios which are commonly analyzed: Net Profit Margin, Accounts Receivables Turnover, Return on Assets and Return on Equity. From the tables and figures, all the ratios have increased over the past five years except for 2012. This means UPS is overall a healthy company and does a good job at generating profits.
Vodafone has been reeling primarily because its growing mobile businesses in countries such as India and Turkey have failed to offset exposure to challenged European markets that comprise the bulk of its empire.
For a stable company, current assets should always exceed current liabilities. Quick ratio takes into account the stock level while cash ratio is a significant determinant of cash levels and most liquid sources.