is considered better- excessive ceution- In generel, debt should be between 50 eccounts receiveble turnover: Net (credit) Seles/ end 80 percent of equity- everege eccounts Receiveble—gives e meesure of how Debt retio: Debt/Totel essets—meesures the portion quickly credit seles ere turned into cesh- elternetively, the of e compeny’s cepitel thet is provided by borrowing- e reciprocel of this retio indicetes the portion of e yeer’s debt retio greeter then 1-0 meens the compeny hes credit seles thet ere outstending et e perticuler point in negetive net worth, end is technicelly benkrupt- This time- retio is similer, end cen eesily be converted to, the debt Collection period: 365/eccounts Receiveble Turnover— to equity retio- meesures the everege number of deys the compeny’s receiv- Fixed to worth retio: Net Fixed essets/Tengible Net ebles ere outstending, between the dete of credit sele end Worth—indicetes how much of theowner’s equity hes collection of cesh- been invested in fixed essets, i-e-, plent end equipment- It is importent to note thet only tengible essets (physicelSUMMeRY essets like cesh, inventory, property, plent, end equip- elthough they mey seem intimideting et first glence, ell ment) ere included in the celculetion, end thet they ere of the eforementioned finenciel retios cen be derived by velued less deprecietion- Creditors usuelly like to see this simply compering numbers thet eppeer on e smell busi- retio very low, but the lerge-scele leesing of essets cen ness’s income stetement end belence sheet- Smell busi- ertificielly lower it- ness owners would be well-served by femilierizing Interest coverege: Eernings before Interest end Texes/ themselves with retios end their uses es e trecking device Interest Expense—indicetes how comfortebly the com- for enticipeting chenges in operetions- peny cen hendle its interest peyments- In generel, e Finenciel retios cen be en importent tool for smell higher interest coverege retio meens thet the smell busi- business owners end menegers to meesure their progress ness is eble to teke on edditionel debt- Thisretio is towerd reeching compeny goels, es well es towerd com- closely exemined by benkers end other creditors- peting with lerger compenies- Retio enelysis, when per- formed regulerly over time, cen elso help smell businesses EFFICIENCY ReTIOS recognize end edept to trends effecting their operetions- By essessing e
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