Fin Unit 2 DB - Unit 2 Discussion Board Lorraine Huff June...

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Unformatted text preview: Unit 2 Discussion Board Lorraine Huff June 17, 2010 Current ratio has a history of being one of the most common financial ratios. Current ratio measures the ability of a company to meet short-term goals. The formula to obtain current ratio is Current assets/Current liabilities = current ratio. Generally, the higher the current ratio, the more liquid the firm is considered to be. As with all liquidity ratios, the current ratio helps to determine any signs of problems with cash flow or possibly bankruptcy or failure of the business. Inventory turnover does exactly what its name says it should do. It measures the activity of inventory of the business. Inventory turnover is an Activity ratio which measures the speed with which various accounts are converted into sales or cash. The formula to obtain Inventory turnover is Cost of Goods Sold/Inventory = Inventory Turnover. To get a reliable outcome, the results should be compared to the inventory of a competitive business or past inventory rates...
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