Week 7 DQ 1 - Asset turnover measures how a company uses...

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Select three ratios, one from each category—liquidity, profitability, and solvency—you think are the most important. Why do you consider these ratios important? Which internal and external users might be most interested in these ratios? Ex p lain why. Liquidity - Current Ratio. Current ratio is figured by dividing the company's assets by its liability's. While this ratio is easy to factor and does provide an idea of the company's liquidity, it does not take into consideration that breakdown of the inventory. Much of the inventory may be fast moving and able to be turned over quickly, it does not identify slow moving inventory that is much harder to get rid of. Profitability - Asset Turnover.
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Unformatted text preview: Asset turnover measures how a company uses its assets to generate new sales. Net sales, divided by the average of each asset determines how well a company is doing. Solvency - Debt to asset ratio. Debt to Asset ratio measures the total assets that have been provided by creditors. Divide total long-term and short-term debt against the total assets. Each of these ratios is important because they generate a snapshot of the fiscal stability of a business. Also, they help to ease the concerns of creditors that might question the need for additional capital. Personally, I feel that the profitability information would be the most useful information to investors and creditors....
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This note was uploaded on 12/13/2011 for the course ACCOUNTING ACC 280 taught by Professor Kenfredrickson during the Spring '09 term at University of Phoenix.

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