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Essay / Research Paper Abstract
This 3-page paper discusses the definition of ratios and the four categories of ratio. Also discussed is the liquid ration (or "current" ratio) and its purpose. Bibliography lists 2 sources.
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3 pages (~225 words per page)
File: D0_MTratidefi.rtf
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Unformatted sample text from the term paper:
A ratio, in its most basic term, classifies the relationship between two numbers as a single number (Zelman et al, 2003). The purpose of a ratio, or of
comparing two different numbers, is to give the reader a better understanding of a companys financial health. There are four different types
of ratios - liquidity, profitability, activity and capital structure (Zelman et al, 2003). A liquidity ratio tells the reader how "liquid" the company is - in other words, how much
immediate cash or short-term stock it has on hand to meet short-term obligations (Zelman et al, 2003). Liquidity is generally measured in a cash-flow statement - high liquidity means the
organization has the cash on hand to pay off short-term debts (generally less than six months in duration). Profitability ratios, on the
other hand, discusses how profitable the firm is - and this information can be found in income statements that deal with profit, loss and revenue. This ratio can also take
into account non-liquid assets, such as accounts receivables (in other words, cash thats anticipated but not yet in hand. Activity ratios point
out how well (or not) the corporation is using its assets to produce revenues (Zelman et al, 2003). This type of ratio would involve cost of goods sold and inventory
turnover, rather than actual profit/loss or liquidity. Finally, capital structure ratios explain how the organizations assets are financed and whether the company can take on new debt (Zelman et al,
2003). This type of information would be found on a balance sheet. 2) Name at least one ratio from each of the four categories listed in DQ #1.
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