financial ratios (1 Viewer)

[ToO LaZy ^*]

solvency- debt to equity ratio:

total liabilities / owner's equity

long term liabilities / shareholder's equity

Is there a difference between these two ratios?...coz they are both under solvency in two difference books

 

[BillyMak]

I think they are both the same ratio, however the second ratio would imply that you don't include current liabilities in the calculation....

 

[ToO LaZy ^*]

hmm..can anyone confirm?

 

[superbird]

same. the textbooks are all showing something different!!
i think in the HSC the marking criteria allows for multiple answers for the financial ratio questions due to the different formulas available (so my teacher tells me).
i find that the debt to equity ratio varies the most among textbooks. my textbook says long-term debt over shareholders equity, and the working captial ratio as current assets - current liabilities.
just to be safe, im gonna go with total liabilities/shareholders equity for the debt to equity one and current assets/current liabilities for the working captial ratio. i think thats rite :S

 

[One Drone]

long term liabilities / shareholder's equity - I've never seen this ratio ever and I doubt you will see a question that will require the use of it. The correct gearing/debt vs equity ratio is Total Liabilities / Owner's Equity. You are comparing what you have borrowed to the money that the owner has invested in the business. Long Term Liabilities only covers a portion of the 'borrowed' funds.. Remember that Current Liabilies also include things such as overdrafts etc.

 

[ToO LaZy ^*]

so total liabilities is current + long term liabilities..ok

 

[superbird]

correct.
btw its the Sykes HSC Business textbook which used long term liabilities/shareholders equity.

 

[ToO LaZy ^*]

macquarie revision guide for business also uses long term liabilities/ share...

 

[superbird]

rang the hsc advice line. the correct formula is indeed total liabilities/owners equity.
im now concerned about the accounts receivable ratio.
my text book has accounts receiveable/average sales wen in fact its supposed to be sales/accounts receivable :/

 

[One Drone]

AR Ratio - Sales/AR x 100

 

[ToO LaZy ^*]

rang the hsc advice line. the correct formula is indeed total liabilities/owners equity.

so is that the gearing ratio?..or the debt to equity ratio?...or are they the same thing? -_-"

 

[Seraph]

Speaking of Financial ratio's

if my liquidity ratio was too high how oculd i fix this

all i acn think of is take out more investments (more loans)
or buy shares in another business
which are basically the same thing , TAKING OUT INVESTMENTS

i cant think of anythign else? what else can i do?

 

[ToO LaZy ^*]

- invest in capital to improve productivity -> but could lead to redundancy payments as capital replaces labour. alternatively, training and development of employees -> improve productivity and employee morale
- invest in share portfolio
- takeovers/mergers
- expand the business

 

[Iron]

The gearing ratio wont be used will it? Because past papers have refered to the debt:equity as gearing a lot...

 

[Seraph]

- invest in capital to improve productivity -> but could lead to redundancy payments as capital replaces labour. alternatively, training and development of employees -> improve productivity and employee morale
- invest in share portfolio
- takeovers/mergers
- expand the business

what, is that for the liquidity ratio???
wouldnt takeovers/mergers mean acquisiton of MORE ASSETS? same with expansion
that would hurt......

 

[ToO LaZy ^*]

..the gearing ratio IS the debt:equity ratio.

 

[ToO LaZy ^*]

what, is that for the liquidity ratio???
wouldnt takeovers/mergers mean acquisiton of MORE ASSETS? same with expansion
that would hurt......

having high liquidity basically means that you have more than enough working capital which is just sitting there not 'working' for you. when you takeover/merge with another business, this capital is generating yet more revenue for you, so it is 'working' for you, but yes, you could say it is an extreme measure and should only be used as a last resort..same with expansion.

 

[headspace]

Just wondering if anyone could help with these two questions, taken from the Online MC Exams...

http://headspace.sporadic-mind.com/bs

Financial questions are the only questions really bothering me with this exam, in particular those question.

 

[ToO LaZy ^*]

question 1
COGS = sales revenue - GP
= 5000 - (5000 x 0.6)
= 2000
.: (C)

question 2
i've already answered this question here -> http://www.boredofstudies.org/community/showthread.php?t=44137

 

[headspace]

thanks champ