Indicators- Profitability and Liquidity Flashcards
Profitability
The ability of the business to earn profit, as compared against a base, such as Sales, assets or owner’s equity..
Liquidity
The ability of the business to meet its short-term debts as they fall due.
Efficiency
The ability of the business to manage its assets and liabilities.
Stability
The ability of the business to meet its debts and continue its operations in the long term.
Return on Owner’s Investment
A profitability indicator that measures how effectively
a business has used the owner’s capital to earn profit.
Return on Assets
A profitability indicator that measures how effectively
a business has used its assets to earn profit.
Debt Ratio
A stability indicator that measures the percentage of a firm’s assets that are financed by liabilities.
Asset Turnover
An efficiency indicator that measures how productively a business has used its assets to earn revenue.
Net Profit Margin
A profitability indicator that measures expense control by calculating the percentage of Sales revenue that is retained as Net Profit.
Gross Profit Margin
A profitability indicator that measures the average mark-up by calculating
the percentage of Sales revenue that is retained as Gross Profit.
Working Capital Ratio
A liquidity indicator that measures the ratio of current assets to current liabilities, to assess the firm’s ability to meet its short-term debts.
Quick Asset Ratio
A liquidity indicator that measures the ratio of quick assets to quick liabilities, to assess the firm’s ability to meet its immediate debts.
Cash Flow Cover
A liquidity indicator that measures the number of times Net Cash Flows from Operations is able to cover average Current Liabilities.
Stock Turnover
The average number of days it takes for a business to convert its stock into sales.
Debtors Turnover
The average number of days it takes for a business to collect cash from its debtors.
Creditors Turnover
The average number of days it takes for a business to pay its creditors.
