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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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What are liquidity ratios? Leverage ratios? Profitability ratios.

To determine

Define the terms liquidity, leverage and profitability ratios.

Explanation

Ratio analysis

One of the techniques of financial statement analysis is ratio analysis. In this analysis, each item in the statement is expressed in terms of percentages or ratios by dividing that item by another item or account to evaluate the financial performance of the company. Ratios are compared with industrial standards to make comparisons better. Liquidity, leverage and profitability ratios are three categories of ratio analysis. They are explained below:

  • Liquidity ratio: These ratios evaluate a firm’s ability to fulfil its present obligations. Some of the ratios calculated are current ratio, acid-test ratio and inventory turnover ratio...

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