Financial Ratios

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3 March 2008

 
Financial Ratios: Week 9 Written Assignment
Three financial ratios used in accounting are liquidity, profitability, and leverage. Financial ratios are important to accounting because it is "a tool that helps measure a business' liquidity, profitability, and reliance on debit financing, as well as the effectiveness of management's resource utilization," (Boone & Kurtz p.527).
Liquidity means having enough money on hand to meet financial obligations without having to sell fixed assets. An accountant uses the liquidity ratio as a way to "measure and show a business' ability to meet short-term obligations when they must be paid," (p.528). Current and acid – test are two commonly used liquidity ratios. Current ratio "compares current assets and liabilities, giving manager's information about the business' ability to pay off its current debts as they mature," (p. 528). Basically the......

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Title: Financial Ratios
Approximate Word Count: 388
Approximate Pages: 2 (250 words per double-spaced page)

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