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Financial Ratios Are Useful Indicators Of How A Company Can Show Their Performance Measures And Financial Situation

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Financial Ratios Are Useful Indicators Of How A Company Can Show Their Performance Measures And Financial Situation
Financial Ratios are useful indicators of how a company can show their performance measures and financial situation. These ratios are calculated by the information that is obtained from the financial statements of the business. These ratios can help analyze trends and compare the business financials to those of other like companies. Sometimes ratio analysis can predict future bankruptcy. These ratios can be shown as the following: Liquidity, financial leverage, asset turnover , profitability, debt service coverage, and market value.
Liquidity ratios show the current ratio which is equal to dividing current assets by current liabilities. Short term creditors prefer a high current ratio since it reduces their risk. Shareholders prefer a lower current ratio so that the firms assets are working to grow the business.
Quick ratios are alternative measure of liquidity that does not include inventory in the current assets. This is shown by current assets minus inventory divided by current liabilities
Leverage
Debt ratio is total debt divided by total assets
Debt to equity ratio is total debt divided by total equity
Times interest earned is interest coverage is equal to ebit divided by interest charges

2014
2013
2012
2011
Nestle Current Ratio
Current Assets/Current Liabilities
1.03
.91
.91
.95
Nestle
Quick Ratio
Current Asset- Inventories/ Current
Liabilities
.75
.66
.65
.68
Kraft Current Ratio(Competitor)
Current Assets/Current Liabilities 1.27 1.34 1.44 1.00
Kraft
Quick Ratio
Current Asset-Inventories/ Current Liabilities
.51
1.08
.67
.63

Turnover
Receivable turnover is annual credit sales divided by accounts receivables
Average collection period is accounts receivables divided by annual credit sales/365
Average collect period is 365/receivables turnover
Inventory turnover is cost of goods sold/average inventory

2014
2013
2012
2011
Nestle Current Ratio
Current Assets/Current Liabilities
1.03
.91
.91
.95
Nestle
Quick Ratio
Current Asset-
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