high or low ratios Flashcards
is high current ratio or low current ratio good
high, more than 2- it means firm is liqyud and can meet its financial obligations on time if its lower than 2 it means it’ll have diffcuiltuty meeting its financial obligations
what happens if current ratio is v high
poor management of funds - stock may be increasing due 2 poor sales, high trade recievables due 2 poor collection , cash and bank balances r lying ideal becuase of bad cash management
what happens if current ratio is v low
inadequate investement in current assets which may result in low liquidity
what does it mean if liquid ratio is less than 1
they wont be able to meet short term financial obligatins cuz cl is more than quick assets
what does high debt equity ratio mean
companys are depending more on long term borrowings as opposed to shf thus lenders r at risk
what does low debt equity ratio mean
companies r depending more on shf than debt, thus lenders have a safety cover
what does high and low asset to debt ratio mean
high- safety cover for lenders
low- lower safety for lenders cuz bsns depends more on oitside loans for its existance
proprietory ratio high and low
high prop ratio means adequate safety cover for lenders
low prop ratio means greater risk to lenders less safety
very high prop funds means bad mixture of prop funds and loa n funds leading to lower roi
interest coverage ratio
higher better becuase higher margin to meet interest cost
debt to capital employed
higher ratio is bad because theres less secuirity to lenders
lower ratio is good cuz more secuirity to lenders
inventory turnover ratio
higher better- more
very high inventory shows overtrading and may resilt in working capital shortage
lower bad- inefficient use of investement in inventory, accumulation of stock
operating profit ratio
higher the ratio. more efficiency of businesso
