financial ratios? (1 Viewer)

[meilz92]

ok, so with the seven financial ratios, what are the ideal ratios for each one?

eg. with the current ratio, a ratio of 2:1 is considered ideal.

what about the rest of them?​

 

[Eddykungfu]

Industry Standards (What to compare against IF they do not specify in stimulus

Solvency
Debt : Equity - 1:1 = Solvent. Anything higher is regarded High Risk, HIGH Geared and Insolvent

Liquidity
Current Ratio : Industry standard 2:1 (Unless given otherwise)


Efficiency Ratio:
Expenses - No "Industry Norm" But businesses will wish to keep this as low as possible.
Accounts receivable Turnover Ratio - 30 days unless given otherwise. (For collection)

Profitability... They'll probs give you the previous performance levels.
Return ON Owners Equity - 4% Bank interest account.

 

[nimssyk]

All im going to say is be very careful about using ideal ratios coz there all bs

unless the give u an industry average be careful of commenting on a figure becasue a lot of things quickly change what could be acceptable for a business

for example a Business A selling essential goods can take higher debt than a luxury good business becasue Business A will have more steady sales throughout the year

Eddy's prettymuch sport on with the 'ideal figures' but just make sure u justify why your using it, nad if possible dont use an ideal ratio unless they give you one.

Good luck Guys

 

[Prashant Sallan]

Solvency
Debt : Equity - 1:1 = Solvent. Anything higher is regarded High Risk, HIGH Geared and Insolvent

Liquidity
Current Ratio : Industry standard 2:1 (Unless given otherwise)


Efficiency Ratio:
Expenses - No "Industry Norm" But businesses will wish to keep this as low as possible.
Accounts receivable Turnover Ratio - 30 days unless given otherwise. (For collection)

Profitability... They'll probs give you the previous performance levels.
Return ON Owners Equity - 4% Bank interest account.

For Debt: Equity, im pretty sure the ideal ratio is 0.6-0.8:1

 

[Eddykungfu]

For Debt: Equity, im pretty sure the ideal ratio is 0.6-0.8:1

Sorry, I thought he/she was asking for industry norms. I never stated that the debtto equity of 1:1 was ideal. I said it meant the business was solvent.