Acct 499 Ip 3

Subject: Ratios

June 19, 2014

Dear John,

I feel that the 5 ratios that best monitor the health of a company are quick ratio, current ratio, debt/equity ratio, activity ratios, and turnover ratios. Quick ratio which is current assets – inventories / current liabilities this is a ratio to see what the company’s ability to meet the short term obligations. The higher that the ratio is the better it is for the company. It is important for investors to know about these ratios to see how the company is doing. The current ratio is current assets / current liabilities which would be some what similar to the quick ratio just inventory are not brought in. This ratio is to see how reliable the company is to pay back the short term liabilities. Even if the ratio is below what it should be it raises a flag to do more research to see if the company will be able to pay the short term liability if the company has a low ratio for this every year then you know that something is wrong. More than like the debt levels are high and they are struggling to pay all of the current assets. This ratio should be high because you want to know that they are able to pay what they have now. Also the lenders or banks would be interested in this ratio to figure out if they should lend to this company or not. The debt/equity ratios have three different parts which are total debt/equity ratio total liabilities/ shareholders equity then you have long tern debt/equity ratio long term debt/shareholders equity and then last you have the short term debt /equity ratio short term debt / shareholders equity. Even though you have more than one of the debts to equity ratios they are basically meaning the same thing this is to know how the company has been financing its growth. The high ratio means that the company would be in debt, then a low ratio would mean that they are growing but not with debt so this company would want a lower ratio. The lenders and bank would want to know this because you would not...