activity ratio measuring how efficiently a firm uses its assets Acid test ratio

# Activity ratio measuring how efficiently a firm uses

• 2

This preview shows page 1 - 2 out of 2 pages.

activity ratio measuring how efficiently a firm uses its assets . Acid-test ratio 1. Its formula: 2. Where the inputs come from: c. both the balance sheet and the income statement 3. What they measure: The acid-test ratio is a strong indicator of whether a firm has sufficient short-term assets to cover its immediate liabilities. Commonly known as the quick ratio , this metric is more robust than the current ratio , also known as the working capital ratio , since it BRENA ADAMS BUS 101 ASSIGNMENT #5 ignores illiquid assets such as inventory . Return on sales 1. Its formula 2. Where the inputs come from: b. only the income statement 3. What they measure: providing insight into how much profit is being produced per dollar of sales. Return on equity 1. Its formula: Return on Equity = Net Income/Shareholder's Equity 2. Where the inputs come from: c. both the balance sheet and the income statement 3. What they measure: The financial ratio measured as net income divided by total equity is known as the firm's Earnings per share 1. Its formula: EPS = net income / average outstanding common shares 2. Where the inputs come frock. Both the balance sheet and the income statement 3. What they measure: The portion of a company's profit allocated to each outstanding share of common stock . Earnings per share serves as an indicator of a company's profitability. Current ratio 1. Its formula Current ratio = current assets / current liabilities 2. Where the inputs come from: c. both the balance sheet and the income statement 3. What they measure: The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability to pay short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables) #### You've reached the end of your free preview.

• • •  