Statement Analysis Tools and Accounting Ratios Test - 4

Current Ratio shows relationship between current assets and current liabilities.

Ideal liquid ratio is 1:1 i.e. Liquid assets should be equal to the current liabilities. In other words it represents a more stringent test for the liquidity of a company in comparison to the current ratio

Quick Ratio is also known as liquid ratio. Formula: Liquid Assets/ Current Liabilities

Formula of Debt Equity Ratio is:
Formula: Debt/Equity
D/E ratio indicates how much debt a company is using to finance its assets relative to the amount of value represented in shareholders equity

Pure ratio form

Solvency ratios indicates the company's ability to meet long term debts while quick ratio indicates the company's ability to meet short term debts.

Quick assets do not include inventories. Stores and spares is the part of inventories. Only liquid assets are considered in quick assets and stores and spares are considered as illiquid.

Activity ratios measure the relative efficiency of a firm based on its assets, leverage or other such balance sheet items and are important in determining whether a company's management is doing a good enough job of generating revenues and cash from its resources.

Inventory turnover ratio is also known as stock turnover ratio. Inventory is wider term whereas stock is a narrow term.

Proposed dividend is an important source of financing temporary working capital, and not the part of shareholders funds.