Title Bar What Are Financial Ratios

[Title-Bar: WHAT ARE FINANCIAL RATIOS?|]

[Video editor notes: show a college girl in class listening to a lecture|]

[Video editor notes: show a teacher asking a question|]

Monique is a freshman at Financial State University. She's excited to take a financial analysis course because she has a job offer to be an intern at Money Corporation. This is Monique's first day in class and her professor, Ms. Collins starts the lecture by asking, 'What is a financial ratio?'

[Video editor notes: teacher should look around the room waiting for students to answer the question|]

[Video editor notes: define a financial ratio as noted below|]

As she look around the class, no one raises their hand. Ms. Collins says, 'A financial ratio is calculated

The formula is current assets divided by current liabilities. These line items can be found on the balance sheet. The higher the ratio, the better the company's ability to pay their current liabilities with their current assets. If the ratio is low, a company may have trouble paying their obligations. ~'Now let's look at a debt ratio~', says Ms. Collins.

[Title-Bar: DEBT RATIO|]

[Video editor notes: explain debt ratio and show the formula|]

Next Ms. Collins explains debt ratio. She said the debt ratio shows what % of assets are financed with liabilities. Remember, liabilities are obligations a company owes, like a loan and assets are items we own, such as a truck. For example, what percentage of the company truck did we finance with a loan? The debt ratio gives us this answer by taking total assets divided by total liabilities.

Ms. Collins goes on to say, the lower the ratio, the less % of assets are financed with liabilities. Meaning you own more of the assets than you owe. Any questions, so far we've talked about being able to pay what we owe, what about profitability?~' ~'What ratio shows profitability?~'

[Title-Bar: GROSS