In Last Episode we have seen about Some of the ratio like P/E Ratio, Return on Equity Share and D/E Ratio. In this Episode we are discuss about some other ratios.
4. Quick Ratio
The quick ratio is an indicator of a firm's short-term liquidity position and measures a firm's ability to meet its short-term obligations with its most liquid assets.
To calculate the quick ratio, you need to subtract your current inventory from your current assets and divide by your liabilities.
Quick Ratio = (Current Assets - Inventory)/ Current liabilities
This shows how easily a company's short-term debt can be covered with existing cash or cash equivalents. If current Ratio is greater than 1the company have good financial position.
5. Working capital ratio
Working Capital Ratio is also known as Current Ratio. Similar to the quick ratio, this looks at how well a company is able to pay off its existing debt. However, it considers all current assets rather than simply liquid assets, so you don’t need to subtract inventory from the equation.
Current Ratio= Current Assets/ Current Liabilities
The higher the working capital ratio, the easier it is for a company to pay its debts with working capital.
6. Return on Equity
This is the Important ratio to be known by the investors. This is one of the most important financial ratios for calculating profitability, looking at a company's net profit minus dividends and dividing that number by equity.
Return On Equity = (Earnings- Dividends)/Shareholders Equity
The results tell you about the overall profitability of a business and can also be referred to as return on net worth.
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