high or low ratios Flashcards

1
Q

is high current ratio or low current ratio good

A

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

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2
Q

what happens if current ratio is v high

A

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

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3
Q

what happens if current ratio is v low

A

inadequate investement in current assets which may result in low liquidity

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4
Q

what does it mean if liquid ratio is less than 1

A

they wont be able to meet short term financial obligatins cuz cl is more than quick assets

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5
Q

what does high debt equity ratio mean

A

companys are depending more on long term borrowings as opposed to shf thus lenders r at risk

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6
Q

what does low debt equity ratio mean

A

companies r depending more on shf than debt, thus lenders have a safety cover

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7
Q

what does high and low asset to debt ratio mean

A

high- safety cover for lenders
low- lower safety for lenders cuz bsns depends more on oitside loans for its existance

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8
Q

proprietory ratio high and low

A

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

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9
Q

interest coverage ratio

A

higher better becuase higher margin to meet interest cost

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10
Q

debt to capital employed

A

higher ratio is bad because theres less secuirity to lenders
lower ratio is good cuz more secuirity to lenders

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11
Q

inventory turnover ratio

A

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

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12
Q

operating profit ratio

A

higher the ratio. more efficiency of businesso

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