ACC/291 Discussion Question: What are some common ratios used to analyze financial information? Which are the most important? What are some examples of how ratios are used in the decision-making process? (Please be sure to discuss the specific ratios and not simply the general categories of ratios).

Good morning, I need a full substantive response for the question provided above. It is a 3 part question that I do not understand. Please read it very carefully to get an understanding of what is being asked before trying to answer it. I uploaded "Chapter 13: Financial Analysis- The Big PictureCan", so you can skim or read through it to find the information you need. Please include in-text citation(s) within your response. In other words, cite where you got your information from by using APA format. Please list the reference(s) under the response as well. You are allowed to use third party sources to back up your answer as long as you use information from textbook too. Can someone please help me? I need this response at your earliest convenience.

Sample Classmate Response to the Question Above:

"Hello Professor and Class,

Liquidity ratios

Liquidity ratios evaluate the ability of a company to convert its current assets into cash and pay current obligations. Common liquidity ratios are the current ratio and the quick ratio. The current ratio is calculated by dividing current assets by current liabilities.

Working capital = current assets - current liabilities

Current ratio = current assets/current liabilities

Current cash debt coverage = Net cash provided by operating activities/average current liabilities

Inventory turnover = cost of goods sold/average inventory

Days in inventory = 365 days/Inventory turnover

Accounts receivable turnover = Net credit sales/Average net accounts receivable

Average collection period = 365 days/Accounts receivable turnover(Kimmel, 2013, "Ratio Analysis")

Solvency, or leverage, ratios judge the ability of a company to raise capital and pay its obligations. Solvency ratios, which include debt to worth and working capital, determine whether an entity is able to pay all of its debts. For example, bankers often include leverage ratios as debt covenants in contract agreements. Bankers want to ensure the entity can maintain operations during difficult financial periods. The debt to worth ratio calculation is total liabilities divided by net worth. Working capital is calculated by subtracting current liabilities from current assets.

Debt to assets ratio = total liabilities/total assets

Cash debt coverage = Net cash provided by operating activities/Average total liabilities

Times interest earned = (Net Income + Interest expense +Tax expense)/Interest expense

Free cash flow = Net cash provided by operating activities - Capital expenditures - Cash dividends(Kimmel, 2013, "Ratio Analysis")

Profitability ratios measure the income or operating success of a company for a given period of time. A company's income, or lack of it, affects its ability to obtain debt and equity financing, its liquidity position, and its ability to grow. As a consequence, creditors and investors alike are interested in evaluating profitability. Profitability is frequently used as the ultimate test of management's operating effectiveness.

Earnings per share = (Net income - Preferred dividends)/Average common shares outstanding

Price-earnings ratio = Stock price per share/Earnings per share

Gross profit rate = Gross profit/Net sales

Profit margin = Net income/Net sales

Return on assets = Net income/Average total assets

Asset turnover = Net sales/Average total assets

Payout ratio = Cash dividends declared on common stock/Net income

Return on common stockholders' equity = (Net income - Preferred dividends)/Average common stockholders' equity(Kimmel, 2013, "Ratio Analysis")

All of these ratios are important to a business's success, the asset turnover ratios help measure the company's short term ability to survive in the market while the other two ratios measure the long-term survivability of the company in the competitive business world.

References:

Kimmel, P., Weygandt, J.J., & Kieso, D.E. (2013).Financial Accounting: Tools for Business Decision Making(7th ed.). Retrieved from The University

http://smallbusiness.chron.com/types-financial-ratios-used-analyze-financial-performance-3969.html"

^The information above is a sample response provided by one of my classmates.^ I do not know how accurate the information is, but she is somewhat using APA format in her response.

I look forward to hearing from someone knowledgeable in the subject of accounting or ACC/291: Principles of Accounting II soon.

Thank you very much, and have a wonderful day.