Statement Analysis Tools and Accounting Ratios Test - 6

Interest coverage ratio is calculated by dividing a company's earnings before interest and taxes by the company's interest expenses for the same period.

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

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.

Ratio will improve as liability decreases by that much amount.

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

Issue of debentures will increase debt and no change in equity. So it will increase the debt equity ratio

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

It is the value of all the assets employed in a business and can be calculated by adding fixed assets to working capital or subtracting current liabilities from total assets.

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

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. 

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

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

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

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

Average inventory is the mean value of an inventory throughout a certain time period. In inventory turnover ratio is calculated by dividing the cost of goods sold for a period by the average inventory for that period.

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.

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

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

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

Revenue from operations ie., net sales is not used in calculating trade payable turnover ratio. It is calculated by taking the total purchases made from suppliers and dividing it by the average account payable amount during the same period.