Statement Analysis Tools and Accounting Ratios Test - 6

Inventory turnover ratio is calculated under the Activity Ratio.
i.e. Inventory Turnover Ratio = Cost of Revenue from operations or cost of goods sold/Average Inventory. Average inventory is used instead of ending inventory because many company's merchandise fluctuates greatly throughout the year.

This financial ratio is most commonly used for industries which require a large percentage of revenues to maintain operations.

Revenue from operations + Other income = Total Revenue. Revenue means amount collected by the business from its main operations.

Low current ratio indicates that business has more liability but less amount to pay off. It means business may face difficulty in meeting its short term liabilities.

Common size statements is a statement in which each account is expressed as a percentage of the value of sales. This type of financial statement can be used to allow for easy analysis between companies or between time periods of a company

Redemption of debentures leads to decrease in liability for debentures and cash balance. Due to this current assets of the company decreases and thereby results in decrease in current ratio

There will be no effect because cash decreases by that much amount and stock increases by that much amount. Both cash and stock belongs to current assets. So no effect

There will be no effect on current ratio because there is increase in cash and decrease in debtors with the same amount. Both debtors and cash comes under current assets. 

Ratio will improve as liability decreases by that much amount.

Operating profit ratio indicates how much profit a company makes after paying for variable costs of production. It is expressed as a percentage of sales and shows the efficiency of a company controlling the costs and expenses associated with business operations.
Operating ratio is a company's operating expenses as a percentage of revenue.
Gross profit ratio is used to assess a company's financial health and business model left over from revenues after accounting for the cost of goods sold.