RATIOS Flashcards

1
Q

current ratio

A

company’s ability to meet its short-term obligations
rule of thumb : healthy business have a minimum current ratio of 2

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2
Q

If an entity has a current ratio significantly higher than that of its peers

A

the entity holds more cash or inventory than a business needs.
it is a signal that it is locking up potentially productive capital

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3
Q

If an entity has a current ratio significantly lower than one of its peers

A

the entity may question its ability to satisfy its current obligations in a timely manner

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4
Q

debt to equity ratio

A

measures financial leverage or the degree of the entity indebtenedness relative to its equity funding

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5
Q

the larger its debt to equity ratio…

A

the greater is the implied strain on the entity to make regular payment to debt holders, and the higher is the risk of bankruptcy

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6
Q

If a company has a total debt to equity ratio that is significantly higher than of its peers

A

they may be concerned about its ability to make the requirement payments to its debt holders and the company’s long-term solvency may be questioned

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7
Q

If a company has a total debt to equity ratio that is significantly lower than that of its peers

A

they may question whether the company is being aggressive enough in pursuing profitable growth opportunities by raising debt when necessary to finance those opportunities

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8
Q

gross margin percentage

A

represents the mark up on the costif the products sold by a company

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