Types of Ratios (see Appendix

Types of Ratios (see Appendix - Types of Ratios (see...

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Types of Ratios (see Appendix/Handout) 1 Liquidity (short-term solvency) Measures the firm’s ability to pay bills in the short-term. Important to short-term creditors (e.g. banks, suppliers). Leverage (long-term solvency) Measures the firm’s ability to pay long-term obligations.
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Solvency Measures 2 The following ratios are generally referred to as liquidity measures but, in fact, measure solvency . Current Ratio Quick Ratio Net Working Capital Net Liquid Balance & Working Capital Requirements
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Current Ratio 3 The Current Ratio indicates the degree of coverage provided to short-term (ST) creditors if ST assets were to be liquidated. Current Assets Current Liabilities Current Ratio =
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Quick Ratio 4 Also known as the Acid-Test Ratio, the Quick Ratio excludes inventory in the numerator since inventory is the furthest removed from cash. Current Assets - Inventory Current Liabilities Quick Ratio =
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Net Working Capital 5 Net Working Capital
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Types of Ratios (see Appendix - Types of Ratios (see...

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