Concept
What ratios measure liquidity, inventory efficiency, profitability, and returns to owners?
IntroductionToBusiness OP 8D04gAa / Summary of Learning Outcomes
"Liquidity ratios are ratios that measure a firm’s ability to pay its short-term debts as they come due. The inventory turnover ratio is the ratio of cost of goods sold to average inventory; measures the speed with which inventory moves through a firm and is turned into sales. Profitability ratios are ratios that measure how well a firm is using its resources to generate profit and how efficiently it is being managed. The net profit margin is the ratio of net profit to net sales; also called return on sales. It measures the percentage of each sales dollar remaining after all expenses, including taxes, have been deducted. Return on equity (ROE) is the ratio of net profit to total owners’ equity; measures the return that owners receive on their investment in the firm. Retained earnings are the amounts left over from profitable operations since the firm’s beginning; equal to total profits minus all dividends paid to stockholders. Ratio analysis is the calculation and interpretation of financial ratios using data taken from the firm’s financial statements in order to assess its condition and performance."
Related Ideas
- How do profitability and activity ratios show how effectively a firm uses its resources?IntroductionToBusiness OP 8D04gAa · 14.7. Analyzing Financial Statements*
- How do assets, liabilities, and liquidity ratios measure financial position?IntroductionToBusiness OP 8D04gAa · Glossary
- How can ratio calculations and workplace activities support financial analysis and accounting practice?IntroductionToBusiness OP 8D04gAa · Preparing for Tomorrow's Workplace Skills
- How do liquidity ratios measure a firm’s ability to pay its short-term debts?IntroductionToBusiness OP 8D04gAa · 14.7. Analyzing Financial Statements*
- How do financial statements and ratios reveal a firm’s financial condition and performance?IntroductionToBusiness OP 8D04gAa · Summary of Learning Outcomes
- How do activity, debt, and performance ratios evaluate a firm?IntroductionToBusiness OP 8D04gAa · Glossary
- How can ratio analysis identify a firm’s financial strengths and weaknesses?IntroductionToBusiness OP 8D04gAa · Preparing for Tomorrow's Workplace Skills
- How can ratio analysis be used to evaluate a firm’s financial strengths and weaknesses?IntroductionToBusiness OP 8D04gAa · 14.7. Analyzing Financial Statements*