Statement Analysis Tools and Accounting Ratios Test - 7

Return on Investment (ROI) is a profitability measure that evaluate the performance of a business by dividing net profit by net worth.

A high Debt to Equity Ratio means a business has been aggressive in financing its growth with debt. Aggressive leveraging practices are often associated with high levels of risk

The main objective of Interest Coverage Ratio is to determine how easily a company can pay interest on outstanding debt.

Debt Equity ratio will increase because long term debts will increase but there is no change in equity.

Debt Equity Ratio will decrease because there is decrease in debts after the redemption of debentures but there is no change in equity.

Debt Equity Ratio is expressed in Fraction , the formula will be debt/ equity

Prepaid expense is an advance payment therefore there is no liquidity for these items. So not forming part of liquid assets.

A high ratio indicates the shorter payment period means that the company is paying off suppliers at a faster rate.

Revenue from operations means income generated from the main activity of business. Indirect expenses are not directly related to the business. Hence it cannot be included in revenue from operations.

Interest coverage ratio is calculated under the head Solvency Ratio.it shows how easily a company can pay interest on outstanding debt.