FIN 370 Week 2 Learning Team - Company Analysis Part I

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Current ratio- Current ratio is a liquidity ratio that measures a company’s current assets against its current liabilities. The current ratio is calculated by dividing current assets by current liabilities (current assets/current liabilities) ("Current ratio," 2013).  

Acid test ratio- The Acid test ratio is a liquidity ratio that measures a company’s ability to meet its current obligations by removing inventory from a company’s current assets. This ratio reflects the illiquidity of inventory and is calculated by subtracting current inventory from current assets and dividing by the current liabilities ("Acid test ratio," 2013).

Gross profit margin- The ratio of gross profit (sales less cost of goods sold) divided by sales ("Gross profit margin," 2013).
 
Net profit margin- Net profit margin is a profitability ratio that shows the percentage of sales that result in profits. It is calculated by dividing net income by sales ("Net profit margin," 2013).
 
Debt ratio- Debt ratio is a leverage ratio that measure total liabilities against total assets. It is calculated by dividing total liabilities by total assets (total liabilities/total assets). The ratio shows how much debt the company has in contrast to assets and is usually expressed as a percentage ("Debt ratio," 2013).
 
Times interest earned ratio- Times interest earned ratio is a leverage ratio that shows whether or not a company is generating enough operating profits or earnings before interest and taxes to pay the interest it is accruing with debts. Times interest earned is calculated by dividing the operating profits by the interest. ("Times interest earned ratio," 2013).

Total asset turnover- Total asset turnover is an asset utilization ratio that indicates how effectively a company generates sales for each dollar invested in assets. It is calculated by dividing sales by a company’s total assets (sales/total assets.) ("Total asset turnover," 2013).

Fixed asset turnover- Fixed asset turnover is an asset utilization ratio that shows how efficiently a company uses fixed assets such as property, plants and equipment. It is calculated by dividing sales by fixed assets, (Sales/PP&E). If the ratio is lower than the industry average, it may suggest that the company has excess inventory and needs to generate more sales ("Fixed asset turnover," 2013).
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