Three categories of financial ratios are liquidity leverageand profitability. Each of these categories has unique ratios that are used to consider the financial health of an organization. In this exercise , you will consider these ratios and match them to their respective categories. In addition, you will consider the kinds of questions each of these ratios can help answer An effective approach for checking on the overall performance of an enterprise is to se key financial ratios. Ratios help Indicate possible strengths and weaknesses in a company's operations Key ratios are calculated from selected items on the profit and loss statement and the balance sheet Read the case below and answer the questions that follow Consider the following comments with respect to which financial ratios should be used to answer their questions. Edward: If we spend money to increase our capacity, how much additional revenue do we need to generate in order to benefit the company ? Ralph: I'd really like to know if and when we'll be able to pay off our short-term debts. Louise Before invest in this companylike to know how much of this company has been funded by credit versus the sale of stock. 3a.

The Right Ratio for the Job (1)

Drag the specific ratios under the appropriate ratio category. Please note that once you complete this part of the question, you will be unable to adjust your answers .

Return on investment Current ratio Debt-equity ratio Ratio Category Liquidity Ratios Leverage Ratios Profitability Ratios Specific Ratio