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Unformatted text preview: Return on equity (ROE) is the (net income)/(Average owners equity) **Average ROE is between 10% and 15% Liquidity refers to a firms ability to meet its current financial obligations, measure in three ways: Working capital = Current assets current liabilities Current ratio = current assets / current liabilities Acid-test ratio = (Cash + Accounts receivable) / (current liabilities) **No inventories included Adequate liquidity: Current ratio of 2.0, Acid-test ratio of 1.0 Some companies do not declare or pay any dividends during some years because many stockholders also wish to avoid tax consequences of current dividends, and stockholders of highly profitable firms are not inclined to place strong dividend pressures on the board of directors because the firm does a better job managing their investment then they could do themselves...
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- Fall '10