ADMS 1500 Lecture Notes - Lecture 8: Quick Ratio, Current Liability, Microsoft Powerpoint

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Short-term survival is critically dependent on the relationship between immediate obligations (current liabilities) and the liquid assets that are available to pay them (current assets). The greater the ratio of current assets to current liabilities, the more liquid the company is, and the lower the threat of running out of cash. Two ratios are used for liquidity analysis: the current ratio; the quick ratio. Definition: (current assets - inventory) current liabilities. Profitability ratios express some measure of profits against the resources used to create them. This means that the results of different-sized companies can be compared. When a company is not able to pay off its liabilities. Definition: (total debt total assets) 100% Definition: (cid:894)total debt sha(cid:396)eholde(cid:396)s" e(cid:395)uity(cid:895) 100% Definition: operating income (income before taxes and interest) interest paid. Efficiency ratios examine this feature by relating the assets on the balance sheet to the sales revenue. Definition: net income number of common shares.

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