Liquidity Ratios
Liquidity ratios are a group of ratios used to measure the ability of a business operation to meets its current obligations.
Value investing is a systematic process of purchasing high quality, intrinsic backed stocks at depressed market prices. Using financial analytics, allow time for market price recovery and then proceed to reap gains from an investor’s patience.
Liquidity ratios are a group of ratios used to measure the ability of a business operation to meets its current obligations.
Insolvency refers to the ability to pay bills in a timely manner. It does not mean bankruptcy but long-term insolvency is a underlying factor of bankruptcy.
Another performance ratio used in business is return on equity. It is similar to return on assets except return on equity uses one section of the bottom half of the balance sheet.
Unlike the other liquidity ratios that are balance sheet derived, the operating cash ratio is more closely connected to activity (income statement).
Operating profit margin refers to the value earned as a percentage of net sales. The operating profit is often referred to as earnings before interest, taxes, depreciation and amortization, (EBITDA).
Within the group of activity ratios, the total assets turnover rate is the broadest in scope. Similar to other activity ratios, it utilizes net sales as the numerator.
The fixed assets turnover rate is another activity ratio whereby an income statement financial characteristic is compared to a balance sheet asset section.
Activity ratios measure performance of a current asset on the balance sheet. The working capital turnover is the most encompassing of all the activity ratios.
The cash ratio is a much more effective tool for small business than the traditional current or quick ratio.