Milestone 5-financial acct.docx - There are three broad...

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There are three broad categories of financial ratios: liquidity, solvency, and profitability. Discuss what each category reveals about the company being analyzed. Give examples of ratios that are affected by inventory, and discuss changes a manager might make to improve the financial ratio. Liquidity Liquidity is the business ability to pay their short-term obligations examples such as taxes, wages, and payments to suppliers (Rodeck,2017). The acid-test ratio and current ratio is used to determine ratios. The acid-test is measured by dividing cash, and marketable securities by liabilities. The current ratio is current assets or current liabilities. A company can improve current ratios by paying down on debt and collect their receivables faster. Most common liquidity ratios are : Current ratio, acid test ratio, working capital ratio and time interest earned ratio Solvency Solvency are ratios that “indicate financial stability, measuring a company’s debt to the assets and equity.” If a company has excessive debt, they may not be able to manage the cash flow if
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  • Spring '13
  • JohnVan
  • Ratios, Financial Analysis, broad categories of financial ratios

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