Which solvency ratios would you believe gives you a good financial picture of - 12612

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1.       Knowing the long-term goals are beneficial. But you also must be aware of short-term goals and understand the current needs in order to achieve the long-term needs. What are some of the short-term ratios that help you achieve short-term and long-term goals? 

 

2.       Which solvency ratios would you believe gives you a good financial picture of the organizations needs?

 

3.        The debt-to-equity ratio helps an organization understand what their financial risk is based on the amount of debt they are carrying. Since we are looking at these ratios, let's explore a little further. Tell me what each of these ratios tells shareholders:

Debt Coverage Ratio:

Debt to Total Assets:
Debt-to-Equity Ratio:
Interest Coverage:

 

Debt coverage ratio is the amount of cash flow at the disposal of the company to discharge its annual obligation including the interest and principal payment (http://www.investopedia.com/terms/d/dscr.asp).

 

 


4.       Creditors often want to know the depth of your extended debt and how long it takes you to pay your debts. If you are looking for a credit limit with a supplier or a new supplier, they often ask how their payables ratio is and ask creditors how well they pay. What are other factors that affect the ratio?

 

Solution Description

1.       Knowing the long-term goals are beneficial. But you also must be aware of short-term goals and understand the current needs in order to achieve the long-term needs. What are some of the short-term ratios that help you achieve short-term and long-term goals? 

The short term debt ratio is one ratio that can be helpful in achieving long term goals. For example knowing what proportion of the long-term debt is owed within the next twelve months can be helpful in determining how long it is going to take to repay the long term debt. Another short term ratio that can help achieve short term and long term objectives is the gross profit ratio. The gross profit ratio is calculated by dividing the gross profit by the net sales. This ratio tells the company the gross profit it is making for every dollar of sales. The ratio can be useful in determining the price a company should charge in the long term in order to break even or make a certain level of net profit.

 

2.