Question

Describe the various key ratios managers rely on, briefly explain what each type of ratio tells the financial manager, and give one specific example of each.

Answer 1

Answer: Liquidity and current ratio, Solvency Ratios and Financial Stability, Profitability Ratios and Margins

Step-by-step explanation:

The various key ratios managers rely on are

1) Liquidity and the Current Ratio; is the commonly used ratio, and is the ratio of current assets to current liabilities. The ratio helps determine the company's ability to foot short term bills

2) Solvency Ratios and Financial Stability; This ratio describes the financial stability by measuring the company's debt in relation to it's assets and equity. Companies with a lot of debts may not be able to sustain themselves overtime if business conditions deteriorates

3) Profitability Ratios and Margins; defines the ability to convert sales dollars into profits and cash flow. The common ones are gross margin, operating margin and net income margin