Discuss in detail the various types of ratios and what they measure.

Question

Question

Discuss in detail the various types of ratios and what they measure.

business accounting

Answer 1

Answer #1

Current ratio: - current asset/current liability

(it tells about the current assets are enough to meet there current liabilities)

Quick ratio : - current assets - inventories/current liabilities

(It shows liquidity of the company of liquidity is not goof then how the company will manage the expenses)

Account receivable turnover : - net credit sale/avg account receivable

(the number of turnovers in one year)

Inventory turnover :- COGS/avg inventory

- (it is to calculated to find how inventory is used)

Day sales inventory :- 365/ inventory turnover in year

Debt to equity :- total liabilities / total shareholders equity

(to find debt portion as compare To equity)

Gross Margin :- gross profit / net sales

Earning per share :- net income after tax / weighted avg common shares

PE ratio :- market price / EPS

This all are Important ratios Hope you will learn this.

Answer 2

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