Question

Discuss three Financial Ratios which would be helpful in assessing the financial strength of a Fortune 500 company of your choice.

Answer 1

1. Current ratio measures the liquidity of a company. This outlines the company's ability to meet any operational financial requirement. It is the ratio of current assets to current liabilities.

2. Debt service coverage ratio: It is one of the major parameters for measuring the solvency of the company. It iis the ratio of the company's net operating income to its current debt obligations. It outlines the company's ability to pay off its debts

3. Operating margin: This is one of the most used ratios to determine the operational efficiency of the company. It is equal to the operating income (Revenue- operating expenses) /Revenue.