19.2. Types of Financial Ratios

Try these first

1. 1.

   What is the formula for the Current Ratio?

   Hint

   Think about a company's ability to meet short-term obligations.

2. 2.

   What does a Quick Ratio of 1:1 indicate?

   Hint

   Consider inventory's role in liquidity.

3. 3.

   What type of ratio measures a firm's ability to meet short-term debts?

   • Liquidity Ratios
   • Profitability Ratios
   • Solvency Ratios

   Hint

   Think about the immediate financial obligations.

4. 4.

   True or False: A Debt-to-Equity Ratio higher than 1 indicates more equity financing.

   • True
   • False

   Hint

   Reflect on the balance between debt and equity financing.

5. 5.

   A tech company has total assets of $1,000,000, total liabilities of$600,000, and net profit of $150,000. Calculate the Debt-to-Equity Ratio and the Return on Equity (ROE).

   Hint

   Understand the relationship between debts and equity in a company's financial structure.

6. 6.

   Consider a retail business with a Quick Ratio of 0.5. What does this indicate about its liquidity, and what actions could be taken to improve this ratio?

   Hint

   Think about how inventory affects liquidity ratios.