Profitability and liquidity ratio analysis Definitions

Question 1

Profitability ratios

Answer 1

financial ratios that show the profit of a business in relation to other financial figures

Question 2

Expenses

Answer 2

costts that are not directly related to the core operations of a business

Question 3

Capital employed

Answer 3

the value of all sources of internal and external finance for a business, calculated from the sum of non-current liabilities and equity

Question 4

Equity

Answer 4

the money invested in the company or business to generate income

Question 5

Liquidity

Answer 5

the ability of a business to convert its current assets into cash

Question 6

Liquidity ratios

Answer 6

financial ratios that measure a business’s ability to settle its short-term debt obligations

Question 7

Working capital cycle

Answer 7

the process of turning current assets into cash that can be used to purchase the resources needed to produce a product

Question 8

Drawings

Answer 8

money or other assets taken out of a business