Current Ratio

- The higher the ratio, the more able a company is to be able to pay off its obligations
- A ratio between 1.5 and 3 is healthy
- A ratio under 1 implies the company is unable to pay off its obligations if they became
due at that particular point in time
- A ratio that is too high may indicate a company is not efficiently using its current assets
or short-term financing

Year x3 Year x4
Current Assets 994 1095
Current Liabilities 410 445
Current Ratio 2.42 2.46

- Inventories are up by 100 in year x4 (0.32 as opposed to 0.25 in year x3). Inventories
high at the end of the Christmas season. Is that bad planning?
- Accounts receivable are also higher in year x4 by 100. Why? Are they having more
trouble collecting cash payments?
- Cash is down in year x4 by 101. Is this because of paying off the bank loan?
- Debt/Equity ratio in year x4 is 1.5, in year x3 it was 3.48. In year x4 the long term bank
loan is 150 lower, and retained profits 200 higher. There is less reliance on debt in year
x4. A company with lower debt/equity ratio is stronger
- QUICK RATIO: year x4 is 1.67, in year x3 1.8. The company has become slightly less liquid
- Gross Margin = Gross profit / Sales
- Operating profit margin = Operating profit / Sales
- Net profit margin = Net profit / Sales