BU283 Lecture Notes - Lecture 21: Multi-Level Marketing, Debt Ratio, Quick Ratio
Document Summary
Cross-sectional analysis: compare ratios to industry norms. Time series analysis: identify trends in ratios over time. Measures how able a firm is to pay its current liabilities. Current ratio= current assets/current liabilities: measures a firm"s ability to meet its short-term obligations (current liabilities, a ratio of 1 indicates the firm has sufficient current assets to meet its current liabilities. Quick ratio=(current assets-inventory)/current liabilities: similar to the current ratio, since inventory isn"t always easily converted to cash, the quick ratio is a more conservative measure of liquidity than the current ratio. Measures how effectively management is utilizing the company"s assets. Total asset turnover = sales/total assets: ideal business has no assets. E. g. , network marketing business: amway, mary kay: tells you how much in sales is generated for every dollar of assets. Fixed-asset turnover = sales/fixed-assets: useful of evaluating business with large amounts of fixed-assets.
