Acct II Financial Ratios (Unit 4)

Comparison of 2amounts; evaluates relationships; liquidity, profitability, &financial strength

Current assets minus current liabilities

Current assets divided bycurrent liabilities; can pay bills and repayloans

The year used for comparison

Evaluate reasonableness of market price of corporation’s stock

= Total liabilities / Total assets

Comparison of the same itemson a company’s financial statements for 2 or more periods; $ or %

Financial info that can be compared from one accounting period or one business to another

Refers to the ability toearn a profit 

NOT a financial strength ratio

= Cost of Merchandise Sold / Avg Merchandise Inventory

= Market price per share / Earnings per share of stock

Measures the ability of abusiness to pay its current debts & provide cash for unexpected needs

Also referred to as component percentages

Does NOT include Merchandise Inventory and Prepaid Expenses.

Number of times peryear a business collects average Accounts Receivable; = Sales / Avg Acct Rec

Short-term liquid assets / current liabilities; pay all current liabilities almost immediately

Amount ofprofit that can be assigned to each share of common stock