MGCR 211 Lecture Notes - Lecture 3: Current Liability, Gross Profit, Retained Earnings

• School: McGill University
• Department: Management Core
• Course: MGCR 211
• Professor: Seda Oz

Document Summary

Never compute ratios on accounting numbers without : evaluating the firm"s accounting policies for your decisions needs, restating the numbers where appropriate, having an appropriate target in mind for the ratio. Current ratio= total current assets/ total current liabilities. The ratio of any entity"s current assets to its current liabilities. Measures the company"s ability to pay current liabilities with current assets. A rule of thumb for both: the higher the better. A large amount of current assets in relationships to a small amount of current liabilities provides some assurance that the obligations coming due will be paid. The debt to equity ratio shows the percent of company financing that comes from creditors and investors. A higher debt to equity ratio indicates that more creditor financing (bank loans) is used than investor financing (shareholders) A debt to equity ratio of 2 means that the assets of the company are funded 2 t1 by investors to creditors.