Class Notes (834,804)
MGCR 211 (108)
Lecture

# Ratios.docx

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School
Department
Management Core
Course
MGCR 211
Professor
Julia Scott
Semester
Fall

Description
Short-Term Liquidity Ratios - Looks at ability to meet current liabilities and assess the quality of the current assets & liabilities Ratio Formula Meaning How to determine bad/good Current Ratio Looks at using current Higher ratio is better (1 or assets to pay current more) in order to be more debts. sure and conservative; however, the size of the Shows how liquid the ration depends on the company is in the business and the types of short term current assets and liabilities that are considered Too much means the company has opportunity costs and can thus invest Quick Ratio Represent the most The higher ratio is, the liquid assets that can better ability to repay debt pay of liabilities and interest in the short term If the quick ratio is significantly lower than the current ratio, this signifies the company has too much money tied up inventory Operating Cash Looks at operating The higher the ratio is, the Flow to ST Debt cash to pay off debt better it can manage its debt Activity Ratios - Information about the efficiency of asset use and more information about short-term liquidity Ratio Formula Meaning How to determine bad/good Accounts To see if the company Depends on the company Receivable if collecting their and comparisons between Turnover accounts receivable in other companies Number of days: a timely manner Inventory Shows how quickly Depends on the company Turnover the company is selling and comparisons between their goods other companies Number of days: Some companies do not include COGS on alone and include it with other expenses – making ratio larger than it really is Accounts Payable To see if the company Number depends on the Turnover is making their terms – shareholders may payments in a timely want them to hold payments Number of days: manner for longer but debtors would want the money as soon as possible Asset Turnover Measures the dollar Expect as company’s amount of sales investment in assets generated from each increases sales should dollar invested in increase. assets Level of turnover varies by industry Long-Term Solvency Ratios - Assesses long-term risk through examining the mix of financing sources used by the company Ratio Formula Meaning How to determine bad/good Debt to Equity Ratio of assets paid by Too high or too low ratio Ratio either debt or equity depends on the business
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