Categories Of Financial Ratios

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CATEGORIES OF FINANCIAL RATIOS The accounting ratios can be grouped in to five categories: 1. Liquidity Ratios shows the extent to which the firm can meet its financial obligations. 2. Asset Management Ratios shows that how effectively the firm is managing its assets. 3. Debt Management Ratios shows the extent to which a firm uses debt financing or financial leverages. 4. Profitability Ratios relates profits to sales and assets. 5. Market Value Ratios are a measure of the return on investment. Current Ratio Current ration shows a firm’s ability to meet current liabilities with its current assets. Formula: current assets/current liabilites 2006 current ratio:2.988 times 2007 current ratio:4.068 times 2008 current ratio:2.735 times 2009 current ratio:2.303 times 2010 current ration:2.853 times Analysis: The trend of current ration is up and down. 2007 have highest current ratio as compared to other years. There is big increase in current assets in 2007, and lower current assets in 2009 that make the lower current ratio in 2009. Quick ratio Quick ratio shows a firm’s ability to meet current liabilities with its most liquid assets. Formula: current assets-inventories/current liabilities 2006 quick ratio:0.72times 2007quick ratio:0.44times 2008 quick ratio 0.64 times 2009 quick ratio 0.57times 2010 quick ratio: 0.63times We know that the 2007 have a higher current ratio and was able to meet its short term obligations as compared other years.where as the quick ratio identifies the role played by the inventories in the context. The inventory is increase year by year, however the 2007 have a higher current liability that 2007 have a lower quick ratio. Cash ratio The cash ratio most commonly used as a measure of company liquidity and how quickly the company can repay its short-term debt. 2006 cash

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