Financial Accounting : Liquidity, Profitability, Solvency Ratios
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What do the following classes of ratios measure? (a) Liquidity ratios. (b) Profitability ratios. (c) Solvency ratios.
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Liquidity, Profitability and Solvency Ratios are discussed in detail. The response received a rating of "5/5" from the student who originally posted the question.
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Liquidity ratios indicate how well the franchise meets its short-term debts or financial obligations. the most commonly used is the current ratio.
The current ratio is current assets divided by current liabilities with both figures coming from the balance sheet. This relationship illustrates the ability of the franchisor to pay current debt using only current assets ( cash, inventory, accounts receivable ). The higher this ratio, the better the franchisor's ability to pay off these short-term liabilities or debts.
Current Ratio = Current ...
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