Ratios

Current Ratio- Definition

Measures ability to pay short‑term liabilities using short‑term assets.

Current Ratio- Equation

Current Assets ÷ Current Liabilities

Current Ratio- Meaning for company

Higher = better short‑term liquidity

Quick Ratio- Definition

Measures ability to pay short‑term liabilities without relying on inventory.

Quick Ratio- Equation

(Current Assets – Inventory) ÷ Current Liabilities

Quick Ratio- Meaning

Shows true liquidity. Useful when inventory is small or slow‑moving.

Gross Margin Ratio- Definition

Shows how much profit is left after covering direct costs.

Gross Margin Ratio- Formula

Gross Profit ÷ Net Sales

Gross Margin Ratio- Meaning

Higher = more efficient at generating profit from core products/services.

Operating Margin Ratio- Definition

Measures profitability after operating expenses.