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What does the ratios in the picture measure? Which specific class of users would be interested in these ratios? (300 words plz) In Chapter 5,
What does the ratios in the picture measure? Which specific class of users would be interested in these ratios? (300 words plz)
In Chapter 5, we discussed three measures related to the statement of cash flows (current cash debt coverage, cash debt coverage, and free cash flow). Throughout the remainder of the text, we provide ratios to help you understand and interpret the information presented in financial statements. Illustration 5A.1 presents the ratios that we will use throughout the text. You should find this chart helpful as you examine these ratios in more detail in the following chapters. An appendix to Chapter 24 further discusses financial statement analysis. Ratio Formula Purpose or Use I. Liquidity 1. Current ratio Current assets Current liabilities Measures short-term debt-paying ability 2. Quick or acid-test ratio Cash + Short-term investments + Accounts receivable (net) Current liabilities Measures immediate short-term liquidity 3. Current cash debt coverage Net cash provided by operating activities Average current liabilities Measures a company's ability to pay off its current liabilities in a given year from its operations
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