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  3. 3) what are the classifications (types) of ratios

3) What are the classifications (types) of ratios (List them and explain what information they...

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Accounting

3) What are the classifications (types) of ratios (List them and explain what information they provide) (15pts)

  • 1. Liquidity ratio- This determines debtors ability to pay off the current debt that they are committed too. This is done without increasing external capital. Ratios that fall under liquidity ratio are current ratio, quick ratio, and days sales that are outstanding. To sum it up this ratio is the sole ability that a company has to cover short term obligation and even cash flows.

2. Profitability Ratios- it is a class of financial metrics that is operated in order to asses a company/businesss ability to generate revenue/earnings in relation to the businesss revenue, operating cost balance sheet assets, or shareholders' equity. This is over a period time, and thus it uses data that is very specific for that point in time. The types of ratios used are gross profit , operating profit ratio, net profit ratio and return on Investment ratio.

3.Working Capital Ratios

4)For each classification above list the ratios that fit within the classification (Give the name and the equation for each one) (15pts)

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