Financial Indicators Flashcards
What does Debt ratio measure?
Total Liabilities over total assets x 100
‘Stability’
measures the percentage of a firm’s assets that are financed by liabilities, and thus indicates the extent to which the business is reliant on liabilities/debt (rather than owner’s capital) to purchase its assets
What does Working capital ratio measure?
Current assets over current liabilities
Liquidity
The liquidy of a business and how able they are to meet short term debts Working Capital Ratio is at least 1:1, as this would indicate that there is at least $1 of current assets available to meet every $1 of current liabilities, and the firm would be able to meet all its short-term debts as they fall due.
What does quick asset ratio measure?
Current assets (excluding inventory & prepaid expenses) over Current liabilities
Liquidity
Quick Asset Ratio (QAR) can be used as an alternative indicator of the level of liquidity. It assesses the firm’s ability to meet
its immediate debts using its immediate assets.
What does cash flow cover measure?
Net Cash Flows from Operating Activities / Average current liabilities
Liquidity
Assesses liquidity using the actual cash that the business generates from its Operating activities to meet its financial obligations. Specifically, it measures the number of times average current liabilities can be met using the Net Cash Flows from Operating Activities.
