Chapter 36, Introduction to ratio analysis and liquidity ratios Flashcards Preview

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Flashcards in Chapter 36, Introduction to ratio analysis and liquidity ratios Deck (8)
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1
Q

Stakeholders that benefit from ratio analysis

A
  • directors
  • managers
  • employees
  • banks
  • suppliers
  • customers
  • shareholders
  • competitors
  • government
2
Q

Ratio Analysis is used for

A
  • measure performance of a given period of time
  • comparisons
  • comparisons between different departments
3
Q

Types of Ratios

A
  • Liquidity
  • Profitability
  • financial efficency
  • Shareholder
  • gearing
4
Q

Liquidity Ratios

A
  • Current Ratio

- Acid Test

5
Q

Current ratio

A

ratio between the number of current assets and current liabilities
Current assets / current liabilities

6
Q

Acid Test

A

takes into account business cannot seel all their stock

Current assets - inventory (stock) / Current liabilities

7
Q

Uses for ratios

A
  • comparisons from year to year
  • Stakeholders
  • Potential suppliers
  • Decision making
8
Q

Limitations of ratios

A
  • Inflation may distort
  • state of economy isnt take into account
  • External influences