Investors also calculate acid test ratios known as quick ratios or pounce ratios. This ratio excludes inventory and prepaid costs, which includes the current ratio, it allows business to quickly convert to cash, cash and items into assets into items that are known as assets in this category fast or liquid We assume. The acid text ratio is calculated by dividing current assets by total current liabilities.
This ratio allows you to claim business creditors rushing to the business and demand quick payment of business debt and calculated due to the worst case scenario Short term creditors, with the exception of unusual circumstances, I do not have the right to request. This ratio is a conservative way of looking at the business's ability to pay its short-term debt.
One factor that affects the profitability of the bottom line of a business is whether it uses debts for its benefits or not. Business realizes financial leverage gain, meaning earning more profit with the money borrowed it, than the interest it paid for the use of borrowed money A good part of this year's business net income is finance It may be due to leverage. The ratio of ROA is determined by dividing the profit before interest and income tax (EBIT) by net operating assets.
Investors compare interest rates and ROAs when companies borrow money. Business ROA is 14% and its debt interest rate is 8%, the net profit of the business of the capital is 6 than that it is interested
ROA is a useful ratio for interpreting performance performance, in addition to determining financial gain or loss. The ROA is called a capital-use test that measures how interest and income tax profit for the total capital adopted by the business.
What are the other ratios used for financial reporting
Dividend yield ratio tells investors how much cash income they are receiving on their equity investment in the business. This is calculated by dividing the annual dividend per share by the current market price of the stock. This can be compared with the interest rates of high grade debt securities that pay interest, such as the most secure treasure or state note.
The book value per share is calculated by dividing the owner's total capital by the total number of issued shares. EPS is more important to determine the market value of the stock, but the book value per share is the following debt, the company's assets of the net assets to back up the business stock This is the market value of the stock one share There is a possibility that it may become smaller than the book value of hit.
Return on equity (ROE) ratio tells bus8iness how much profit earned compared to the stock value of its shareholders. This ratio is particularly useful for private business that has no way to determine the current value of the owner's equity. ROE is also calculated for public enterprises, but it plays a secondary role in other proportions. The ROE is calculated by dividing the net profit by the owner's equity.
The current ratio is a measure of the short-term solvency of business, in other words, the ability to pay liabilities that occur in the near future. This ratio indicates whether cash collected from cash and cash collected from accounts receivable and cash from inventory are sufficient to repay the debt incurred during the next period This is the result of dividing current assets by current liabilities It is calculated. An enterprise is expected to maintain a current ratio of at least 2: 1, meaning that current asset must be its current liability twice.
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