Financial Ratios

Question 1

what is the current ratio?

Answer 1

current assets divided by current liabilities

tells us if the company has enough to cover its short term bills/debts

Question 2

what are financial ratios?

Answer 2

ratios that provide useful information regarding a company financially

Question 3

what is considered to be a safe current ratio?

Answer 3

1.5+

anything below 1.5 is considered to be risky

Question 4

what is the debt ratio?

Answer 4

total liabilities divided by total assets x100 (represented as a percentage)

tells us what percentage of our assets would be allocated towards paying off debts if the company was liquidated

Question 5

what is equity ratio?

Answer 5

total shareholders' equity divided by total assets x100 (represented as a percentage)

tells us what percentage of our assets would be allocated to shareholders if the company was liquidated

Question 6

the lower the debt ratio, the higher the equity ratio: is that good or bad?

Answer 6

good

Question 7

the lower the equity ratio, the higher the debt ratio: is that good or bad?

Answer 7

bad

Question 8

what are the three main financial ratios?

Answer 8

current ratio
debt ratio
equity ratio