19. Financial Statement Analysis – Ratio Analysis

Try these first

1. 1.

   What is the formula for the Current Ratio?

   Hint

   Think about how you would check if you have enough cash to pay immediate expenses.

2. 2.

   What does a high Debt-to-Equity Ratio indicate?

   Hint

   Consider what it means for a company to fund its operations mainly with loans or creditors.

3. 3.

   What does the Current Ratio indicate?

   • Company's short-term liquidity
   • Long-term solvency
   • Profitability

   Hint

   Think about how much cash a company has on hand to pay bills.

4. 4.

   True or False: A higher ROE indicates less efficient use of shareholders' equity.

   • True
   • False

   Hint

   Focus on how returns reflect equity's performance.

5. 5.

   A company reports the following: Current Assets = $300,000; Current Liabilities =$150,000; Total Debt = $100,000; Shareholders' Equity =$200,000. Calculate the Current Ratio and Debt-to-Equity Ratio, and interpret the results.

   Hint

   Ensure your interpretation considers both ratios' implications on liquidity and leverage.

6. 6.

   Discuss the importance of ratios in startup funding, emphasizing the role of ROE and Quick Ratio in negotiations.

   Hint

   Think about how these ratios can highlight both short-term and long-term financial health in conversations with investors.