445 Words2 Pages

| Huffman Trucking |
Memo
To: Graham Grove, Vice President of Industrial Relations
From: Paul Johnson Director of Accounting
CC: Simone Ojeda Accounting Specialist
Date: [ 4/9/2012 ]
Re: Results from ratio calculations and horizontal and vertical analysis
What do the liquidity, profitability, and solvency ratios reveal about the company’s financial position?
Liquidity ratios are the ratios that measure the ability of Huffman Trucking to meet its short term debt obligations. These ratios measure the ability of this company to pay off its short-term liabilities when they fall due.
Profitability ratios measures Huffman Trucking’s ability to generate earnings relative to sales, assets and equity. These ratios assess the ability of the company to generate earnings, profits and cash flows relative to some metric, often the amount of money invested. They highlight how effectively the profitability of a company is being managed. Common examples of profitability ratios include return on sales, return on investment, return on equity, return on capital employed, return on capital invested, gross profit margin and net profit margin. All of these rations indicate how well this company is performing at generating profits or revenues relative to a certain metric.
Solvency ratios this is one of many ratios used to measure a company’s ability to meet long-term obligations. The solvency ratio measures the size of a company’s after-tax income, excluding non-cash depreciation expenses, as compared to the company’s total debt obligations. It provides a measurement of how likely a company will be to continue meeting its debt obligations.
Users who may be interested in each type of ratio? Liquidity ratios are used by suppliers and other trade creditors. Profitability ratios are used by customers, Managers, Governments and their agencies. Solvency ratios are used by lenders to

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