Understanding Concepts Essay Example | Topics and Well Written Essays - 1250 words

Understanding Concepts - Essay ExampleBalance Sheet Ratio depth psychology calculates solvency and liquidity of a business. They include Current Ratios = Total Current Assets / Total Current Liabilities. The ratio shows whether a business has sufficient veritable assets to meet its current debts and leave a margin of safety in case of current assets losses such as collectable accounts or inventory shrinkage. Two to 1 is the favourable current ratio (Stickney, 2010). If the current ratio of a business is low, turning fixed assets into current assets, debts payment, and taking back profits into the business washstand help raise it. Quick Ratios / acid-test ratio = Cash + Government Securities + Receivables / Total Current Liabilities. 11 is the satisfactory acid-test ratio. Working Capital is calculated by taking Total Current Assets less Total Current Liabilities. Leverage Ratio or Debt/Worth Ratio = Total Liabilities / web Worth. It indicates how far a business relies on debt fina ncing. If this ratio is high, it becomes hard to obtain credit.Income Statement Ratio Analysis measures profitability. They include Gross Margin Ratio = Gross wage / Net Sales. It calculates the sales dollars left inform of a percentage to cover the companys overhead expenses. Net Profit Margin Ratio = Net Profit before Tax/ Net Sales. It details the sales percentage, which remain after deducting the Cost of Goods sold and any other expenses apart from income taxes (Stickney, 2010).Management Ratios include history Turnover Ratio = Net Sales / Average Inventory at Cost indicates how effectively inventory is managed. Accounts Receivable Turnover Ratio (in days) = Accounts Receivable / cursory Credit Sales it shows how effectively the receivables be collected. Return on Assets Ratio = Net Profit before Tax / Total Assets it measures how effectively profits are being derived from the assets in the