Business chapter 18 : profitability and liquidity ratios

finance chapter 5

acid test ratio

liquidity ratio that measures a firms ability to meet its short term debts, ignores stock because not all inventories can easily be turned into cash

capital employed

value of all long term sources of finance for a business namely non current liabilities plus equity

current ratio

short term liquidity ratio, calculated ability of a business to meet its debts within 12 months

gross profit margin

profitability ratio that shows value of of a firms gross profit expressed as a % of its sales revenue

liquid asset

possessions of a business that can be turned into cash quickly without losing their value like cash,stocks etc

liquidity crisis

situation where a firm is unable to pay its short term debts

liquidity ratios

ability of a firm to pay its short term liabilities, includes acid test ratio and current ratio

profit margin

ratio that shows % of sales revenue that turns into profit

profitability ratios

examine profit in relation to other figures including gross profit margin, return of capital employed ratios

ratio analysis

quantitive management tool that compares different financial figures to examine and judge the financial performance of a business

return on capital employed

profitability ratio that measures financial performance of a firm based on amount of capital invested