D076 Module 7 AQA 100%

5 major types of financial ratios - liquidity, activity, leverage, profitability, and market A firm has paid off its short-term loans more quickly in the past couple of years. What might this trend indicate about the firm's financial ratios? - Its liquidity ratio is increasing. Accounts Receivable turnover, average collection period, inventory turnover, total asset turnover, and operating income return on investment. - Activity ratios Activity Ratios - measure how well a company uses its assets to generate sales or cash Activity ratios such as inventory turnover, accounts receivable (AR) turnover, and average collection period (ACP) are used to - check short-term operating asset management efficiency, while total asset turnover (TAT), fixed asset turnover (FAT), and operating income return on investment (OIROI) assess how well a firm is using its assets to generate sales. Both the market-to-book (M/B) and price-to-earnings (P/E) ratios are used to - Both the market- to-book (M/B) and price-to-earnings (P/E) ratios are used to Current and quick ratios - Liquidity ratios Current and quick ratios are different because - of potential illiquidity of inventory, and they are compared with liquidity ratios to assess how well a firm can meet short-term obligations. Debt ratio, debt to equity ratio, times interest earned - Leverage Ratios DuPont framework - helps analyze where changes in return on equity come from.