logo
g Text Version
Beauty & Self
Books & Music
Career
Computers
Education
Family
Food & Wine
Health & Fitness
Hobbies & Crafts
Home & Garden
Money
News & Politics
Relationships
Religion & Spirituality
Sports
Travel & Culture
TV & Movies

dailyclick
Bored? Games!
Nutrition
Postcards
Take a Quiz
Rate My Photo

new
Action Movies
Bible Basics
Houseplants
Romance Movies
Creativity
Family Travel
Southwest USA


dailyclick
All times in EST

Full Schedule
g
g Accounting Site

BellaOnline's Accounting Editor

g

Interpretation of Main Financial Ratios

Guest Author - Consuelo Herrera, CAMS, CFE

Business owners want to determine their ability to pay short-term debt or to establish their immediate short-term liquidity. Dealing with a fast paced environment is critical for decision making, especially if it involves decisions that will have a long lasting impact.

The types of financial ratios are:
    1. Liquidity
      Activity
      Profitability
      Coverage.

    Liquidity ratios measure a company's ability to respond to request for sources to pay its current debt at a given time. Liquidity ratios include: Current Ratio, Quick or Acid Test Ratio, and Current Cash Debt Ratio. Current Ratio is the result of dividing current assets by current liabilities. The higher the ratio, the more liquid the company. The Quick Ratio demonstrates the strength or weakness of a company from the financial perspective. It is calculated by subtracting inventories from current assets and dividing the result by current liabilities. Current cash debt is the result of dividing net cash provided by operating activities by the average of current liabilities.

    Activity ratios measure liquidity of inventory and receivables and how well assets are used to generate sales. Activity ratios include: Receivable Turnover Ratio, Inventory Turnover Ratio, and Asset Turnover Ratio.

    Profitability ratios measure profitability of assets, owners' investment, net income earned on each share of common stock, the measure of the ratio of the market price per share to earnings per share, and the percentage of earnings distributed in the form of cash dividends.

    Coverage ratios measure the percentage of total assets provided by creditors, the ability to meet interest payments as they are due, the company's ability to repay its total liabilities out of its operations in a given year, and the amount of money each share of common stock would receive if the company were liquidated at the amounts reflected on the balance sheet.

    Forensic accountants analyze financial ratios of corporations and then compare them to the rates of similar companies where the organization operates. To access these reports usually involves charges depending on the size of the market to be analyzed. Reports are available by sales size range, number of employees, and other factors that highlight how the corporation being analyzed positions itself within the market or how far away its financial ratios are from its peers. If a company's financial ratios are unusual or distinct from the rest of companies to which a benchmark is established, forensic accountants determine first the justification or lack of it and then, they take action, if necessary.
  • This site needs an editor - click to learn more!

    Add Interpretation+of+Main+Financial+Ratios to Twitter Add Interpretation+of+Main+Financial+Ratios to Facebook Add Interpretation+of+Main+Financial+Ratios to MySpace Add Interpretation+of+Main+Financial+Ratios to Del.icio.us Digg Interpretation+of+Main+Financial+Ratios Add Interpretation+of+Main+Financial+Ratios to Yahoo My Web Add Interpretation+of+Main+Financial+Ratios to Google Bookmarks Add Interpretation+of+Main+Financial+Ratios to Stumbleupon Add Interpretation+of+Main+Financial+Ratios to Reddit




    Honesty is the Best Business Practice
    Pillars of Accounting Information
    SEC Actions why Reactive Rather than Preventive?
    RSS
    Related Articles
    Editor's Picks Articles
    Top Ten Articles
    Previous Features
    Site Map


    For FREE email updates, subscribe to the Accounting Newsletter


    Past Issues


    print
    Printer Friendly
    bookmark
    Bookmark
    tell friend
    Tell a Friend
    forum
    Forum
    email
    Email Editor


    Content copyright © 2014 by Consuelo Herrera, CAMS, CFE. All rights reserved.
    This content was written by Consuelo Herrera, CAMS, CFE. If you wish to use this content in any manner, you need written permission. Contact BellaOnline Administration for details.

    g


    g features
    Archives | Site Map

    forum
    Forum
    email
    Contact

    Past Issues
    memberscenter


    vote
    Poetry
    Daily
    Weekly
    Monthly
    Less than Monthly



    BellaOnline on Facebook
    g


    | About BellaOnline | Privacy Policy | Advertising | Become an Editor |
    Website copyright © 2014 Minerva WebWorks LLC. All rights reserved.


    BellaOnline Editor