ipl-logo

Analyzing Financial Ratios Paper

849 Words4 Pages

This paper is going to provide answers for the three following question:
1. What three factors would influence your evaluation as to whether a company’s current ratio is good or bad, why?
2. Suggest several reasons why a 2:1 current ratio might not be adequate for a particular company.
3. Why is working capital given special attention in the process of analyzing balance sheets?
Also, this paper is going to illustrate the importance of those financial information to the management to make wise decisions.

1. What three factors would influence your evaluation as to whether a company’s current ratio is good or bad, why?
The three factors that would influence my evaluation as to whether a company’s current ratio is good or bad are :
A. the type …show more content…

The value of the current ratio is one of the major factors that influence the evaluation to whether a business's current ratio is good or bad. For example, the ratio of 2:1 is considered standard that means the current ratio below 2:1 is a bad indicator of the company's ability to meet its liabilities towards creditors because the short-term liquidity of a business is no that strong ("Analyzing Your Financial Ratios", (n.d.)).
B. If the current ratio is equal or higher than 2:1, that is a good indicator of the company's ability to fulfill its liabilities towards its creditors; and the company is in a good position of the short- term liquidity.
C. The high current ratio is not always an indicator of a strong liquidity ability of a business and may not be safer than a business that has lower current ratio. Therefore, it is essential when evaluating the position of the current ratio of a business also to look at the composition and quality of the business’s current assets (Wohlner, (2017, May 25)). Moreover, the turnover of the receivables is an essential factor that is linked to the current ratio and should be looked at when evaluating.
3. Why is working capital given special attention in the process of analyzing balance …show more content…

Also, such information are essential to know how healthy and strong is the business financially to make business plans either for short- term or long term.
In summary, The financial ratios are essential financial tools that are used to measure the business financial health, business ability to pay its liabilities, business needs for getting loans, and the ability to carry on new investment.
.
References
Analyzing Your Financial Ratios. (n.d.). Retrieved from https://www.tdbank.com/small_business/workshops/Ratios/textratio_analysis.htm
Current Ratio. (n.d.). Retrieved from

Show More
Related

Macy's Comprehensive Analysis

1077 Words | 5 Pages

The current ratio (working-capital ratio) is used to measure liquidity and it is the present assets of a company to the present liabilities (Law, 2016). A current ratio of 1 (100%) or greater is an indication that the company have a high chance

Read More

Xacc/280 Week 3 Financial Ratios Paper

422 Words | 2 Pages

The three financial ratios are important tools that judge the leverage, profitability, and liquidity. “Profitability ratios are ratios that measure the rate of return a firm is earning on various measures of investment.” (2018, p. 150) This is important to a business because the whole purpose of a business is to make a profit, profitability shows the business exactly how it is doing and if the business is achieving that goal. “Profitability ratios also have many major ratios one being return-on-equity (ROE), calculated by dividing net income (profit) by owners’ equity, measures the income earned per dollar invested by the stockholders.”

Read More

Est1 Task 3

864 Words | 4 Pages

Accounting ratios offer insight into business performance. The financial stability of a company can be tested to see how a company is performing using financial ratios. I have three sets of accounts, it is my objective to calculate the ratios, and interpret them to show the overall performance levels of all three companies. Liquidity ratio evaluates the company’s ability to pay off any current liabilities as well as long-term liabilities. These ratios display the cash levels and the ability to turn assets into cash to pay off liabilities and other current obligations.

Read More

Mountainarious Sporting Financial Analysis

1387 Words | 6 Pages

Here we are making a business report which evaluates the performance of Mountainarious Sporting Co. to take loan from Canadian Commercial Bank. With the given basic financial reports by the company we have used few methods of analysis which includes horizontal, vertical and trend analysis as well as ratios such as Debt, Current, Acid Test and Asset Turnover ratios. We also used other ratios such as Return of Total Assets, Return on Equity , net profit margin and so forth. All the calculations of the above are found in the appendices. Horizontal and vertical analysis The Financial Statement analyses how sales are increasing and whether the sales are reasonable for the

Read More

Roger's Financial Ratios

679 Words | 3 Pages

Current Ratio: This is used to determine Rogers' short-term liquidity by comparing its current assets to its current liabilities. Rogers may experience short-term obligations; this ratio indicates its ability to meet these debts with its current assets. Growth Ratios: This ratio helps to estimate Rogers' growth potential, including revenue growth rate and earnings growth rate. In a competitive telecommunications industry, the ratios can provide insights into Rogers’ expansion strategy, its market share, and its profitability over time. Debt management ratios: The debt-to-equity ratio and interest coverage ratio are used to manage debt.

Read More

Cango Financial Statement

506 Words | 3 Pages

The current ratio is the best way to assess the ability of a company’s capabilities to pay off its short term liabilities with short term assets.

Read More

Costco Weaknesses

833 Words | 4 Pages

By evaluating the working capital and checking their current ratio, which is 1.22 in 2014, shows

Read More

Target Financial Ratios

474 Words | 2 Pages

(TGT) 1.) Liquidity of short-term assets Current ratio 0.94 Cash ratio 0.06

Read More

Speech On D-Day Normandy

728 Words | 3 Pages

(n.d.). Retrieved from

Read More

Sports Direct Current Ratio Analysis

261 Words | 2 Pages

The current ratio of 2.3 means that for liability of 1 company has the ability to pay the 2.3 which shows the financial strength and effectiveness of the Sports Direct Company. It also measures the ability of the company to pay

Read More

Current Ratio Analysis Paper

769 Words | 4 Pages

Cash ratio tells if a company knows how to pay its debt. This is very important for investors, employees, and customers. The current ratio for Five Below was 2.92. In my opinion this is good for a company. The percentage is a high percentage.

Read More

Financial Analysis Paper

1364 Words | 6 Pages

When the risk is taking into consideration by looking at the balance sheet. In the beginning, the balance sheet will show the available amount of money from current assets and current liabilities. When calculating the current ratio by dividing current assets of the company dividing by current liabilities. Example, the current assets of Burger King is 1,363 millions divided by current liabilities is 605 with the current ratio will be 2.25 for the year of 2014. In 2013, the current assets is 891 divided by 398 will be 2.24 in current ratio.

Read More

Ratio Analysis Of Nike

4014 Words | 17 Pages

A problem with the current ratio is that it accounts for inventory, which is not as liquid as other current asset accounts, and may lead to a disingenuous analysis. Another problem arises with this ratio because it accounts for the receivables account, which may overvalue the ratio, especially if the business

Read More

Ryanair Financial Ratio Analysis

2985 Words | 12 Pages

The following example will provide further explanation: some entities, for instance a supermarket, may have a lot of cash trade. Due to this reason, it is a possibility that their current assets ratio of less than 2 : 1. This is not likely to be an issue for them because sufficient amounts of cash is probably collected daily through the checkouts. On the other hand, the airline industry, a low current ratio may not necessarily mean that a company is in peril. Reason being is that a large portion of the high current liabilities may relate to the pre-purchased tickets, which the airline can honour for a relatively low marginal cost.

Read More

Khind Holdings Berhad Swot Analysis

2240 Words | 9 Pages

The current ratio is a liquidity and efficiency ratio that measures a firm's ability to pay off its short-term liabilities with its current assets. In the year 2012, KHB had a current ratio of 1.688 but it comes to decrease in 2013 to a 1.642. The ratio in the year 2014 was 1.670 indicating a slight increase. The competitor of KHB, the PMMB had a current ratio of 4.785, 4.012 and 3.622 from the year 2012 to 2014 respectively. A current ratio should be more than 2.0 as a higher current ratio indicates a more promising current debt payments.

Read More

More about Analyzing Financial Ratios Paper

Related Topics

Open Document