select three financial ratios discussed in Chapter Thirteen A financial ratio, which is also known as an accounting ratio is a tool used to determine relationships between companies’ financial information and the ability to effectively compare the performance of one company from its competitors (Peavler, 2016). Managers use various ratios to assess the financial performance and financial condition of organizations. That said there are three financial ratios this piece of writing will focus on; they are Ratios used to measure profitability or profitability ratios. This ratio’s main focus is on the income statement. The second is Ratios used to measure short-term liquidity or short-term liquidity ratios, which focus is on short-term liabilities, and finally, Ratios used to measure long-term solvency or long-term solvency ratios, which main focus is on long-term liabilities (Heisinger & Hoyle, 2012). And discuss what information the ratios provide management There are numerous information all three ratios provide …show more content…
For example, under the profitability ratio measurement, management would have to calculate the gross margin generated for each dollar by dividing the gross margin by the net sales. So for management to figure out exactly the company’s gross margin ratio, it simply divides the gross margin by the net sales. What is essential is that this ratio focuses on the income statement information of a company. Under the short-term liquidity ratios, we consider how the current ratio is used by management. In this scenario, the management would have to calculate the current ratio of the company by dividing current assets by current liabilities. For example, a company with current assets of $21,579 and current liabilities of $18,508 will have a current ratio of 1.17. So management can effectively use its current assets and liabilities to come up with its current