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    This document discusses key financial ratios used to analyze a company's liquidity, solvency, profitability, and efficiency. It defines the current ratio, debt to equity ratio, gross profit ratio, net profit ratio, return on equity, expense ratio, and accounts receivable turnover ratio. Higher current ratios, gross profit ratios, and return on equity are better, while lower debt to equity ratios, expense ratios, and accounts receivable turnover ratios are preferable. These ratios help evaluate a company's financial health from different important perspectives.

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    hsc business studies financial equations rule of thumb

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    Financial Equations.doc

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    This document discusses key financial ratios used to analyze a company's liquidity, solvency, profitability, and efficiency. It defines the current ratio, debt to equity ratio, gross profit ratio, net profit ratio, return on equity, expense ratio, and accounts receivable turnover ratio. Higher current ratios, gross profit ratios, and return on equity are better, while lower debt to equity ratios, expense ratios, and accounts receivable turnover ratios are preferable. These ratios help evaluate a company's financial health from different important perspectives.

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    © All Rights Reserved
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    10 views1 page

    Financial Equations

    Uploaded by

    moonman1996
    This document discusses key financial ratios used to analyze a company's liquidity, solvency, profitability, and efficiency. It defines the current ratio, debt to equity ratio, gross profit ratio, net profit ratio, return on equity, expense ratio, and accounts receivable turnover ratio. Higher current ratios, gross profit ratios, and return on equity are better, while lower debt to equity ratios, expense ratios, and accounts receivable turnover ratios are preferable. These ratios help evaluate a company's financial health from different important perspectives.

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    © All Rights Reserved
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    of 1

    FINANCIAL EQUATIONS

    Liquidity: CURRENT RATIO = CURRENT ASSETS Higher the left hand side
    -------------------------------- (CA) the etter!!!
    CURRENT LIAILITIES e"g" #$%
    Solvency: &ET TO EQUIT' RATIO = TOTAL LIAILITIES Higher the de(t
    ----------------------------- The higher the Ris)!
    O*NER EQUIT' e"g"+",$%
    Profitability: 1. -r.ss /r.fit Rati. = -ROSS /ROFIT
    ----------------------- Need a high rati.
    SALES .r 0er1entage (e"g" #+2)
    2. Net /r.fit Rati. = NET /ROFIT Need a high res3lt
    -------------------- If n.t Need t.
    SALES Red31e E40ense
    (Re5e5(er -r.ss /r.fit = Sales Re6en3e 7 CO-S
    CO-S = O0ening st.1) 8 /3r1hase 7 Cl.sing st.1)"
    Net /r.fit = -r.ss /r.fit 8 An9 .ther In1.5e 7 E40enses)
    3. Ret3rn .n O:ners E;3it9 = NET /ROFIT (After Ta4)
    -----------------------------------
    O*NERS EQUIT'
    Efficiency: Expense Ratio = Expenses Loer Result
    !!!!!!!!!!!!!! "#e $etter %&'
    Sales
    (ccounts Receivable "urnover Ratio = Sales
    !!!!!!!!!!!!!!!!!!! "#e Loer t#e )u*ber
    (+, Receivable of -ays t#e $etter.
    %"#en -ivide into 3./ days'
    )ote: 0or1in2 ,apital Ratio is t#e sa*e as t#e ,urrent Ratio3

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