In: Finance
For each definition, list the “ratio category (or grouping)” that is described by filling in the blanks from (a) to (f) and provide one example for each category or grouping. a) Determines a company’s ability to pay off short term obligations or debts as they come due. ________________________ b) Relates company’s internal performance to the external judgment of the marketplace in terms of what it is worth. ¬________________________ c) Identifies percentage of earnings paid out to shareholders and what is reinvested for internal growth. ________________________ d) Speed at which company turns over its inventory, receivables and long-term assets. ________________________ e) How a company is financed between debt [lenders] and equity [owners]. ________________________ f) Measures return on sales, assets and total capital. ________________________
a)Liquidity Ratio. It indicates how much cash, short term assets that are easily converted to cash are available at the company's disposal to pay off short term obligations. Example: Current Ratio
b)Market Prospect Ratios or Valuation Ratios. These Ratios indicates how much the market is ready to pay (External Judgement) for every one dollar the company earns( Internal performance) Ex: P/E ratio
c) This will be answered by splitting the question in to two halves. Dividend Payout Ratio, indicates percentage of earnings paid out to shareholders as dividends. Retention Ratio, indicates percentage of earnings that is reinvested for internal growth. There is NO one word categorization available for this one, although it could be classified under Valuation Ratio
d) Activity Ratios. Measures a firms ability to convert different B/S accounts to Cash and how quickly it can do it.Example: Inventory Turnover Ratio
e) Capital Structure/ Leverage Ratios. Indicates the mix of funds provided by the equity and debt holders. Example: Debt/Equity Ratio
f) Profitability Ratios. These ratios measure a company's performance. It is simply the capacity of the company to make profit after accounting for all types of expenses. Example: Return on Sales, Return on Assets