Statement Analysis Tools and Accounting Ratios Test - 49

Solvency ratios is one of the various ratios used to measure the ability of a company to meet its long term debts. Quick ratio used to measure companies ability to meet its short term debts.

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

Quick Assets do not include inventories because it cannot be converted into cash quickly ie., illiquid asset

Proprietry ratio is calculated under the solvency ratio. i.e. Proprietary Ratio = Proprietors Funds/Total Assets

Deferred tax asset is treated as a fictitious asset because it doesn’t play any role in the firm. It refers to a situation where a business has overpaid taxes or taxes paid in advance. These are eventually returned to the business.

Money generated by the company from its main operation can be termed as revenue

Solvency ratio measures a company's ability to meet its long term obligations . in general a solvency ratio measures the size of a company's profitability compared to its obligations

An ideal current ratio is 2:1. It means a business must try to maintain its current assets twice of current liabilities. High ratio indicates under trading and over capitalisation.

Ratio Analysis is a tool used by individuals to conduct a quantitative analysis of information in a company's financial statements.

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