Primary Discussion Response is due by Thursday (11:59:59pm Central), Peer Responses are due by Saturday (11:59:59pm Central).
Primary Task Response: Within the Discussion Board area, write 200-250 words that respond to the following questions with your thoughts, ideas, and comments.
Watch the following video in preparation for the discussion:
This will be the foundation for future discussions by your classmates. Be substantive and clear, and use examples to reinforce your ideas. Focus your discussion on the following questions:
I think all of these financial ratios are important, but I prefer the debt ratio because it gives you insight into how much money they have left over to pay off debt.
Liquidity Ratios indicate the solvency of a company’s debt obligations and how quickly they can be repaid.
Liquidity Ratios indicate the solvency of a company’s debt obligations and how quickly they can be repaid. The four liquidity ratios are:
Operating Leverage Ratio (OLR)
Long-Term Debt to Equity Ratio
Profitability Ratios reflect the efficiency and effectiveness with which companies utilize resources to generate revenue.
Profitability ratios reflect the efficiency and effectiveness with which companies utilize resources to generate revenue. The most common profitability ratio is net profit margin, which measures how much money a company makes after taking out operating expenses and taxes. Other commonly used profitability ratios include return on assets (ROA), return on equity (ROE) and debt to equity ratio.
Financial leverage ratios measure the long-term solvency of a company.
Financial leverage ratios are also important because they measure the long-term solvency of a company. As you know, financial leverage is defined as a ratio that tells you how much debt a company is carrying relative to its assets. A high level of financial leverage means that a company has more assets than it needs in order to meet its obligations, and therefore has less cash available for operations; conversely, low levels indicate that there are greater amounts of liquid assets (e.g., cash) than needed for day-to-day operations; better yet is when both ratios are low!
In addition to measuring liquidity (i.e., how much money we’ve got), these measures can also provide insight into risk management practices (or lack thereof). If our asset/liability ratio exceeds 100%, then we may be using too much borrowed money to finance ourselves through investments or other means—and this would increase our chances of defaulting on those loans when times get tough again down the road!
Debt Ratios measure the ability of a company to repay its debt.
Debt Ratios measure the ability of a company to repay its debt. Adverse Debt Ratios are a measure of how much debt your company has relative to its operating income, while Debt Ratios and Financial Leverage Ratio show how much equity you have in relation to total assets.
Financial Leverage Ratios are calculated as follows: Loan Amount / Total Assets & Equity
A high financial leverage ratio means that a company has more debt than it can handle, which could lead to higher interest rates or reduced profits if they need funding later down the road. A low financial leverage ratio means that there is less debt relative to assets and equity, so that there’s more room for growth without having trouble financing new projects or paying back old loans when needed
Financial leverage ratios is the most important ratio to analyze in my opinion because it allows you to examine how much debt a company is carrying and what implications this has on future solvency.
Financial leverage ratios are the most important ratio to analyze in my opinion because they allow you to examine how much debt a company is carrying and what implications this has on future solvency.
In order to understand financial leverage, you must first understand how it works. Financial leverage refers to the ratio between liabilities and assets. Liabilities include bonds and loans while assets include cash flows generated by operating activities (profits) plus marketable securities such as stocks or bonds that can be sold at any time if needed (i.e., liquid). In addition, there are two types of financial leverage: fixed-rate long term debt versus variable rate short term debt
In my opinion, the most important financial ratios are liquidity ratios and profitability ratios. Liquidity Ratios indicate the solvency of a company’s debt obligations and how quickly they can be repaid. Profitability Ratios reflect the efficiency and effectiveness with which companies utilize resources to generate revenue. Financial leverage ratios measure the long-term solvency of a company. Debt Ratios measure the ability of a company to repay its debt. The only category that I feel is not important enough to include in this analysis is debt ratio because it does not take into account interest payments on loans or other liabilities owed by companies (such as shareholder equity).
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