RATIO ANALYSIS 3
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Accounting and Financial Management for Bankers — JAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
What does the Debt-Equity Ratio measure in a firm's financial structure?
It measures the proportion of debt financing relative to equity, indicating the degree of financial leverage and creditors' risk exposure.
What is the formula for calculating the Absolute Liquid Ratio?
Cash plus marketable securities divided by current liabilities
How is the Current Ratio calculated and what does a ratio of 2:1 signify?
Current Ratio = Current Assets / Current Liabilities; a 2:1 ratio is traditionally considered ideal, indicating the firm can comfortably cover short-term obligations.
What does a Current Ratio below 1:1 indicate about a firm's liquidity position?
Firm cannot meet short-term obligations from current assets
What is the Quick Ratio and why is it preferred over the Current Ratio for liquidity assessment?
Quick Ratio = (Current Assets – Inventory – Prepaid Expenses) / Current Liabilities; it excludes less-liquid assets, giving a stricter measure of immediate liquidity.
How is the Fixed Charges Coverage Ratio different from the Interest Coverage Ratio?
Fixed charges coverage includes lease payments and preference dividends additionally
What does the Proprietary Ratio indicate about a company's financial health?
Proprietary Ratio = Shareholders' Funds / Total Assets; it shows the proportion of assets financed by owners, with a higher ratio indicating greater financial stability.
What is the formula for Net Worth Ratio in financial analysis?
Shareholders' net worth divided by total assets multiplied by hundred
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