business

Profitability ration

Based profitability ration information provided from its financial statements, Super Duper Electronics, Inc. Amortization – Change in Net Working Capital – Capital Expenditure.

Another method of calculating a company’s potential of failure is by using statistical models. How to calculate the future value of a present sum of money. Includes an interest table of future value factors. How to calculate the present value of a future sum of money or multiple future cash payments.

A derivation of the present value formula for an annuity. Derivation of the present value of a perpetuity and the present value of a growing perpetuity. Introduces the concept of capital budgeting and the alternative criteria that financial managers may use in the investment decision process. Introduction to the common-size income statement and balance sheet, including their advantages, how to prepare them, examples, and limitations.

An overview of financial ratios, including liquidity ratios, asset turnover ratios, financial leverage ratios, profitability ratios, and dividend policy ratios. Internet Center for Management and Business Administration, Inc. Financial ratios are useful indicators of a firm’s performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm’s financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy.

Financial ratios can be classified according to the information they provide. Liquidity Ratios Liquidity ratios provide information about a firm’s ability to meet its short-term financial obligations. They are of particular interest to those extending short-term credit to the firm. Short-term creditors prefer a high current ratio since it reduces their risk.

Shareholders may prefer a lower current ratio so that more of the firm’s assets are working to grow the business. Typical values for the current ratio vary by firm and industry. For example, firms in cyclical industries may maintain a higher current ratio in order to remain solvent during downturns. One drawback of the current ratio is that inventory may include many items that are difficult to liquidate quickly and that have uncertain liquidation values. The quick ratio is an alternative measure of liquidity that does not include inventory in the current assets. The current assets used in the quick ratio are cash, accounts receivable, and notes receivable.

These assets essentially are current assets less inventory. The quick ratio often is referred to as the acid test. Finally, the cash ratio is the most conservative liquidity ratio. It excludes all current assets except the most liquid: cash and cash equivalents.