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Suppose you have 200 apples and 100 oranges.
Ratio analysis formula and interpretation. The proprietary ratio also known as net worth ratio or equity ratio is used to evaluate the soundness of the capital structure of a company. Equity ratio is equal to 2641 equity of 4120 divided by assets of 15600. Individual ratio may have significance of its own.
Quick ratio Quick assets Current liabilities. Hence the quick ratio can also. The following are different ways in which ratios may be interpreted.
Ratio Analysis 1 P a g e Introduction A sustainable business and mission requires effective planning and financial management. Liquidity solvency efficiency profitability equity market prospects investment leverage and coverage. Ratios cover the quantitative part of the analysis.
Key ratios can be roughly separated into four groups. It means to clear its current liability the company needs to sell 24 times its current inventory levels. Current ratio also known as the working capital ratio The formula for calculating this ratio is Current assets OR Current assets.
Inventories and prepayments are not included. Current ratio which let us know the short term solvency of a firm. The benefit of ratio analysis depends a great deal upon the correct interpretation.
Aim of every business concern is to earn maximum profits in absolute terms and also in relative terms ie profit is to be maximum in terms of risk undertaken and capital employed. To help identify the short term liquidity of a firm this ratio is used. It has mainly two types of ratio under this.
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