RATIO ANALYSIS PART 2 & WORKING CAPITAL MANAGEMENT
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for VIDEO LECTURES OF ASHISH SIR (FOR ALL SCALES) — Bank Promotions.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What does the Current Ratio measure in ratio analysis?
The Current Ratio measures a firm's ability to meet its short-term obligations using current assets. It is calculated as Current Assets divided by Current Liabilities, with a standard benchmark of 2:1 for healthy liquidity.
What is the Capital Gearing Ratio and what does a high ratio indicate?
Fixed interest capital to equity; high ratio means high financial risk.
What is the Quick Ratio (Acid Test Ratio) and why is it preferred over the Current Ratio?
The Quick Ratio is calculated as (Current Assets minus Inventory) divided by Current Liabilities. It is preferred because it excludes inventory, which may not be quickly convertible to cash, giving a more conservative liquidity picture.
What is the Absolute Liquid Ratio (Super Quick Ratio) and what does it measure?
Cash plus bank balances to current liabilities; measures immediate liquidity.
What is the significance of a Current Ratio below 1:1 for a banker?
A Current Ratio below 1:1 indicates that the firm cannot cover its current liabilities with current assets, signaling a liquidity crisis. A banker would treat this as a red flag when assessing creditworthiness.
What is the ideal value of the Quick Ratio considered acceptable by banks?
1:1 is considered the ideal Quick Ratio by banks.
How is the Debt-Equity Ratio calculated and what does it indicate?
The Debt-Equity Ratio is calculated as Total Long-Term Debt divided by Shareholders' Equity (Net Worth). It indicates the degree of financial leverage and how much the business is funded by creditors versus owners.
What is the Debt to Total Assets Ratio and what does it signify?
Total debt divided by total assets; shows proportion of assets financed by debt.
Video classes for this chapter
More chapters in Live Class Recordings
Master the full VIDEOLECTURE syllabus
Every chapter of VIDEO LECTURES OF ASHISH SIR (FOR ALL SCALES) — videos, tests, notes and one-liner decks in one place.