De DELIOOUS ENTERPRISE uquioiTy Quick Ratio (Acid Test) oon gute Ratio: The erm iq rtersto the avait ful assets to mee shor-term obligations. Thus, gud rates mesurethe abt of ‘he purine to pay te monthly ble The most widely ured gut ratlor re cumentatioand quckratio, Curt aio cane determines by ding total erent assets by toa eutentobte. General, this rato shows the bunes'aiity to generate cas o meats short orm obligations. Qu fll, alsofnown asthe aa est rato, measures the extent to whiencurentabites are covered auld assets. To determine quekato the falliton of il acts does no ake int cour inventories ince ee sometimes cat to convert them ina cs acyPROFITABILITY “© Profitability ratios are imoortan ndiestos ofthe busines financial performance Investors wil saticulriy be interested inthese ratios since they measure the cerfermance and growth potential o th business. Some ofthe commonly used profitably ratios are oss profit ratgin. net profit marzin, return.on asses and etn on eit. Grow profit margin give good indetion af Financial health f the business Without an adequate ross marin, the business vl be unabeto pay ts operating and other expenses. Gross profit margin is calculated by diving the business oss income by sales Net | brott marzin an indication af how effective the businss is cost corto. the higher the retproftmaran te mare effective the businass is 3 converting sles into actual paft. Net profit margin is calculate by dividing the business net income by sales. Return of assets measures the overall return atthe busines x ale make on itz azets Thizratio = derived by dividing ne business net proft by etal acres. fern af equity shou what the business has earned on Its une’ Inesonent nthe busines. This rato ls derives byeviding the Business ne roi byt equi.DE DELICIOUS ENTERPRISE EFFICIENCY “& Theeefciency ratios measure how efficient the business uses its assets to generate sales, The most widely used efficiency ratio for plant purposes isrecewvable tumover and inventory turncver ratios. Recelvable turnover isthe ratio of net credit sal of business te ts average accounts recewvable dunng @given period, usualy ayes. isan actWty ratio which estimstes the numberof times a business cllecsIts average accounts receivable balance during a period, Accounts racalvable turnover clculatad using the following formula: Net Crest Salas/average Accounts Receivable. ccounts receivable tumover measures the efficiency ofa business in colectingis credit sales. Generally high value of accounts receivable tumover s favorable and lower figure may Indicate inefficiency n collecting cutstanding sales. Increase in accounts receivable tumover ‘overume generally ndietes improvement nthe process of cash collection on credit sales. tnventory tumover (or stock turmover] measures the numberof umes inventoneshave been converted Into sales and indicetashow liquid the inventors Allether things being equal the higher the tumover figure, the more lguld the business, Tlsratio divides the cost fsa (oF cost of goods sla) bythe average vale of inventory. The average value of inventory Is derived by adding the cpering and closing balance of and dividing the total by 30.