Select one of the financial ratios listed Below. Write the formula for calculating it, and then explain how it is useful in analyzing the financial health of the firm.

How would you use the ratio, how would you assess whether it is at an appropriate level or if it should be improved, and if so, how would you improve it?

• Current ratio = current assets/ current liabilities

• Quick ration = Current assets inventory / current liabilities

Other liquidity Ratios

• Cash ratio = Cash/ Current Liabilities
• Net Working Capital to Total Assets = Net working Capital / Total Assets
• Interval Measure= Current assets / Average daily operating costs

Long term Solvency Measures

• Total assets total equity / total assets
• Debit- equity ratio = total debt / total equity
• Equity multiplier = total assets / total equity

• Long term debt ratio = long term debt / long term + total equity

• Tomes interest earned ratio = EBIT / Interest
• Cash coverage ratio= EBIT + Depreciation / interest

Asser management, Or turnover, measures

• Inventory turnover = Cost of goods sold / inventory
• Receivables Turnover = sales / accounts receivable

• NWC turnover= sales / NWC
• Fixed asset turnover = sales/ net fixed assets
• Total asset turnover = sales/ total assets

Profitability measures

• Profit margin = Net income/ sales
• Return on Assets= Net income / total assets
• Return on equity = net income / total equity

Market Value Measures

• EPS = net income/ Shares outstanding
• PE= price per share / earning per share
• Market to book ratio= market value per share / book value per share
• Enterprise value= total market value of the stock + book value of liabilities cash
• EBITA Ration= enterprise value/ EBITDA