DQ2 h.docx - Hi Professor Nahavandi a Explain the major...

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Hi Professor Nahavandi, a. Explain the major financial ratios and financial cycles, debt ratio, debt to equity ratio, return on assets, return on equity, current ratio, quick ratio, inventory turnover, days in inventory, accounts receivable turnover, accounts receivable cycle in days, accounts payable turnover, accounts payable cycle in days, earnings per share (EPS), price to earnings ratio (P/E), and cash conversion cycle (CCC) and state the significance of each for financial management. Include examples based on a hypothetical balance sheet and income statement. The use of financial ratios came with the need for comparing companies of different sizes and across different sectors. Since the financial measures and the way of calculating those measures vary from company to company, financial ratios could be used as a quick yardstick to make the comparison even and on same parameters. Financial ratios are traditionally grouped into the following categories: Short-term solvency, or liquidity, ratios. Current Ratio It is the ratio of current assets to current liabilities. If the current ratio is greater than 1 that means the company has more current assets than current liabilities and vice-versa. But per (Bryley-Myers-Allen) , changes in current ratio can be misleading. For example, if a firm borrows a large sum of money and invests in some liquid assests like bonds, the current ratio changes even though the net working capital remains the same. This is why some firms use net short

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