Question

what is the relationship between
Current ratio , Inventory turnover ,Days’ sales in inventory,Debt to equity ratio, Asset Turnover Ratio,
Inventory Turnover Ratio, Net Profit margin, Return on assets (ROA), Return on Equity
Ratio
and why ? thank you for your help

Answer 1

Current Ratio deals with the Current assets and current liabilities which lets us know the cash which can be used for working capital. Inventory Turnover considers the replacement of the old inventory with the new inventory. Days in sales in inventory will tell us how many days it took for us to sell off the entire inventory. Here we see the relationship in the cash put aside for maintaining the working capital for the inventory management, also we happen to see the sales involved with respect to the Inventory. Debt to Equity considers the ratio levels of debt with respect to the Equity. This shows the rising debt levels of a company, asset turnover ratio considers the revenue that a company generates. The relationship between the debt and asset/equity is to find out how much a company is capable enough to pay of it's debt and can still earn a revenue for it's next quarter. Returns on assets and returns on equity determines us the how much company is able to make on it's assets and equity so that it helps the management to decide whether to raise the equity through other means like IPO or secondary market. Net profit Margin let's us know about the profit that's a company is making the revenue after deducting all the expenses whereas asset turnover ratio shows us how much revenue we can make out of assets of a company.