About 'debt to total assets ratio interpretation'|Debt Rattle, December 20 2008: War in the Labour Markets
Ｆｉｎａｎｃｉａｌ ｒａｔｉｏｓ ａｒｅ ｔｈｅ ｃｏｍｐａｒａｔｉｖｅ ｖａｌｕｅｓ ｗｈｉｃｈ ａｒｅ ｕｓｅｄ ｔｏ ｓｃｒｕｔｉｎｉｚｅ ａｎｄ ｋｅｅｐ ａｎ ｅｙｅ ｏｎ ａ ｃｏｍｐａｎｙ'ｓ ｐｅｒｆｏｒｍａｎｃｅ. Ａｎ ａｎａｌｙｓｉｓ ｏｆ ｆｉｎａｎｃｉａｌ ｓｔａｔｅｍｅｎｔｓ ｉｓ ｂａｓｅｄ ｏｎ ｔｈｅｓｅ ｒａｔｉｏｓ ｉｎ ａ ｒａｔｉｏ ａｎａｌｙｓｉｓ. Ａ ｃｏｍｐａｎｙ ｏｂｔａｉｎｓ ｔｈｅ ｂａｓｉｃ ｄａｔａ ｆｏｒ ｉｔｓ ｒａｔｉｏ ａｎａｌｙｓｅｓ ｆｒｏｍ ｉｔｓ ｏｗｎ ｉｎｃｏｍｅ ｓｔａｔｅｍｅｎｔ ａｎｄ ｂａｌａｎｃｅ ｓｈｅｅｔ. Ａ ｒａｔｉｏ ａｎａｌｙｓｉｓ ｉｓ ｔｈｅ ｉｎｔｅｒｐｒｅｔａｔｉｏｎ ｏｆ ｔｈｅ ｒａｔｉｏ ｖａｌｕｅ - ｗｈａｔ ｉｔ ｍｅａｎｓ. Ｔｈｅｒｅ ａｒｅ ｔｗｏ ｔｙｐｅｓ ｏｆ ｒａｔｉｏ ｃｏｍｐａｒｉｓｏｎｓ ｔｈａｔ ｃａｎ ｂｅ ｍａｄｅ: ｃｒｏｓｓ-ｓｅｃｔｉｏｎａｌ ａｎｄ ｔｉｍｅ-ｓｅｒｉｅｓ. (Ｇｉｔｍａｎ, 2009, ｐ. 54) Ｃｒｏｓｓ-ｓｅｃｔｉｏｎａｌ ａｎａｌｙｓｉｓ ｉｓ ｔｈｅ ｃｏｍｐａｒｉｎｇ ｏｆ ｏｎｅ ｃｏｍｐａｎｙ'ｓ ｆｉｎａｎｃｉａｌ ｒａｔｉｏ(ｓ) ｔｏ ａｎｏｔｈｅｒ ｃｏｍｐａｎｙ'ｓ ｆｉｎａｎｃｉａｌ ｒａｔｉｏ(ｓ) ｗｈｅｎ ｂｏｔｈ ｃｏｍｐａｎｉｅｓ ａｒｅ ｉｎ ｔｈｅ ｓａｍｅ ｉｎｄｕｓｔｒｙ. Ｔｈｅｓｅ ａｎａｌｙｓｉｓ ｅｎｔａｉｌ ａ ｃｏｍｐａｒｉｓｏｎ ａｔ ｔｈｅ ｓａｍｅ ｐｏｉｎｔ ｉｎ ｔｉｍｅ. Ｆｏｒ ｅｘａｍｐｌｅ, Ｍｉｃｒｏｓｏｆｔ ｍａｙ ｗａｎｔ ｔｏ ｃｏｍｐａｒｅ ｉｔｓ ｔｏｔａｌ ｌｉａｂｉｌｉｔｉｅｓ ｔｏ ｎｅｔ ｗｏｒｔｈ ｒａｔｉｏｎ ｔｏ ｔｈａｔ ｏｆ Ａｐｐｌｅ. Ｃｈｅｖｒｏｎ ｍａｙ ｗａｎｔ ｔｏ ｃｏｍｐａｒｅ ｉｔｓ ｒｅｔｕｒｎ ｏｎ ｔｏｔａｌ ａｓｓｅｔｓ ｒａｔｉｏ ｔｏ ｔｈａｔ ｏｆ Ｅｘｘｏｎ. Ｃｒｏｓｓ-ｓｅｃｔｉｏｎａｌ ａｎａｌｙｓｉｓ ｃａｎ ａｌｓｏ ｉｎｃｌｕｄｅ ｔｈｅ ｃｏｍｐａｒｉｎｇ ｏｆ ａ ｃｏｍｐａｎｙ'ｓ ｆｉｎａｎｃｉａｌ ｒａｔｉｏ ｔｏ ｔｈｅ ｉｎｄｕｓｔｒｙ ａｖｅｒａｇｅ ｆｉｎａｎｃｉａｌ ｒａｔｉｏｓ. Ｗｈｅｎ ｔｈｅｒｅ ｉｓ ａ ｎｏｔｅｗｏｒｔｈｙ ｄｅｖｉａｔｉｏｎ ｔｏ ｔｈｅ ｐｏｓｉｔｉｖｅ ｏｒ ｎｅｇａｔｉｖｅ ｓｉｄｅ ｏｆ ｔｈｅ ｉｎｄｕｓｔｒｙ ａｖｅｒａｇｅ, ｔｈｅｎ ｔｈｉｓ ｎｅｅｄｓ ｔｏ ｂｅ ｉｎｖｅｓｔｉｇａｔｅｄ. Ｅｖｅｎ ａ ｈｉｇｈ ｄｅｖｉａｔｉｏｎ ｔｏ ｔｈｅ ｐｏｓｉｔｉｖｅ ｓｉｄｅ ｃａｎ ｓｐｅｌｌ ｔｒｏｕｂｌｅ. (ｐ. 54) Ｔｉｍｅ-ｓｅｒｉｅｓ ａｎａｌｙｓｉｓ ｅｘａｍｉｎｅｓ ａ ｃｏｍｐａｎｙ'ｓ ｆｉｎａｎｃｉａｌ ｐｅｒｆｏｒｍａｎｃｅ ｏｖｅｒ ｔｉｍｅ. Ｂｙ ｃｏｍｐａｒｉｎｇ ｔｈｅ ｐｒｅｓｅｎｔ ｔｏ ｐａｓｔ ｐｅｒｆｏｒｍａｎｃｅ, ｖｉａ ｒａｔｉｏｓ, ａｎａｌｙｓｔｓ ｃａｎ ａｓｓｅｓｓ ａ ｃｏｍｐａｎｙ'ｓ ｄｅｖｅｌｏｐｍｅｎｔ. Ｐｏｓｉｔｉｖｅ ａｎｄ ｎｅｇａｔｉｖｅ ｔｒｅｎｄｓ ｃａｎ ｂｅ ｅｘｐｏｓｅｄ ｂｙ ｕｓｉｎｇ ｍｕｌｔｉｙｅａｒ ｃｏｍｐａｒｉｓｏｎｓ. Ａ ｌａｒｇｅ ｐｒｏｂｌｅｍ ｍａｙ ｂｅ ｒｅｖｅａｌｅｄ ｔｈｒｏｕｇｈ ａｎｙ ｓｔｒｉｋｉｎｇ ｙｅａｒ-ｔｏ-ｙｅａｒ ｃｈａｎｇｅｓ. (ｐ. 56) Ａｓ ｗｉｔｈ ｍｏｓｔ ｍｅｔｈｏｄｓ ｏｆ ｖａｒｉｏｕｓ ｔｙｐｅｓ ｏｆ ｍｅｔｈｏｄｓ ｕｓｅｄ ｉｎ ｔｈｅ ｗｏｒｌｄ ｔｏｄａｙ, ｔｈｅｒｅ ｉｓ ａｌｓｏ ａ ｈｙｂｒｉｄ ｍｅｔｈｏｄ ｏｆ ｃｒｏｓｓ-ｓｅｃｔｉｏｎａｌ ａｎａｌｙｓｉｓ ａｎｄ ｔｉｍｅ-ｓｅｒｉｅｓ ａｎａｌｙｓｉｓ, ｓｉｍｐｌｙ ｒｅｆｅｒｒｅｄ ｔｏ ａｓ ｃｏｍｂｉｎｅｄ ａｎａｌｙｓｉｓ. Ｃｏｍｂｉｎｅｄ ａｎａｌｙｓｉｓ ｉｓ ｃｏｎｓｉｄｅｒｅｄ ｔｈｅ ｍｏｓｔ ｆｕｎｃｔｉｏｎａｌ ｗａｙ ｔｏ ｕｓｅ ｒａｔｉｏ ａｎａｌｙｓｉｓ. Ｕｔｉｌｉｚｉｎｇ ｔｈｉｓ ｃｏｍｂｉｎｅｄ ｖｉｅｗ, ａｎａｌｙｓｔｓ ａｒｅ ａｂｌｅ ｔｏ ｅｖａｌｕａｔｅ ａｎｙ ｔｒｅｎｄｓ ｉｎ ｔｈｅ ｂｅｈａｖｉｏｒ ｏｆ ｔｈｅ ｒａｔｉｏｓ ｉｎ ｒｅｌａｔｉｏｎ ｔｏ ｔｒｅｎｄｓ ｉｎ ｔｈｅ ｉｎｄｕｓｔｒｙ. (ｐ. 56) Ｆｉｎａｎｃｉａｌ ｒａｔｉｏｓ ｃａｎ ｂｅ ｄｉｖｉｄｅｄ ｉｎｔｏ ｆｉｖｅ ｃａｔｅｇｏｒｉｅｓ: ｌｉｑｕｉｄｉｔｙ, ａｃｔｉｖｉｔｙ, ｄｅｂｔ, ｐｒｏｆｉｔａｂｉｌｉｔｙ, ａｎｄ ｍａｒｋｅｔ ｒａｔｉｏｓ. Ｔｏ ｇａｕｇｅ ｒｉｓｋ, ａｎａｌｙｓｔｓ ｕｓｅ ｌｉｑｕｉｄｉｔｙ, ａｃｔｉｖｉｔｙ, ａｎｄ ｄｅｂｔ ｒａｔｉｏｓ. Ｔｏ ｃａｌｃｕｌａｔｅ ｒｅｔｕｒｎ, ａｎａｌｙｓｔｓ ｃｈｏｏｓｅ ｐｒｏｆｉｔａｂｉｌｉｔｙ ｒａｔｉｏｓ. Ｔｏ ｑｕａｎｔｉｆｙ ｂｏｔｈ ｒｉｓｋ ａｎｄ ｒｅｔｕｒｎ, ａｎａｌｙｓｔｓ ｏｐｔ ｆｏｒ ｍａｒｋｅｔ ｒａｔｉｏｓ. Ｔｈｅｒｅ ａｒｅ ｔｗｏ ｔｙｐｅｓ ｏｆ ｌｉｑｕｉｄｉｔｙ ｒａｔｉｏｓ: ｃｕｒｒｅｎｔ ｒａｔｉｏ ａｎｄ ｑｕｉｃｋ (ａｃｉｄ-ｔｅｓｔ) ｒａｔｉｏ. Ｔｈｅ ｃｕｒｒｅｎｔ ｒａｔｉｏ ｉｓ ｏｎｅ ｏｆ ｔｈｅ ｍｏｓｔ ｃｏｍｍｏｎｌｙ ｒｅｆｅｒｅｎｃｅｄ ｆｉｎａｎｃｉａｌ ｒａｔｉｏｓ ａｓ ｉｔ ｇａｕｇｅｓ ａ ｃｏｍｐａｎｙ'ｓ ｃａｐａｂｉｌｉｔｙ ｔｏ ｍｅｅｔ ｉｔｓ ｓｈｏｒｔ-ｔｅｒｍ ｃｏｍｍｉｔｍｅｎｔｓ. Ｉｔ ｉｓ ｄｅｒｉｖｅｄ ｂｙ ｄｉｖｉｄｉｎｇ ｔｈｅ ｐｒｅｓｅｎｔ ａｓｓｅｔｓ ｏｆ ｔｈｅ ｆｉｒｍ ｂｙ ｔｈｅ ｆｉｒｍ'ｓ ｐｒｅｓｅｎｔ ｌｉａｂｉｌｉｔｉｅｓ. Ｍｏｓｔ ｏｆｔｅｎ, ｔｈｅ ｈｉｇｈｅｒ ｔｈｅ ｃｕｒｒｅｎｔ ｒａｔｉｏ, ｔｈｅ ｍｏｒｅ ｌｉｑｕｉｄ ｔｈｅ ｆｉｒｍ ｉｓ ｔｈｏｕｇｈｔ ｔｏ ｂｅ. Ａ ｃｕｒｒｅｎｔ ｒａｔｉｏ ｏｆ 2.0 ｉｓ ｉｎｆｒｅｑｕｅｎｔｌｙ ｎａｍｅｄ ｓａｔｉｓｆａｃｔｏｒｙ. Ｈｏｗｅｖｅｒ, ａ ｖａｌｕｅ'ｓ ｓｕｉｔａｂｉｌｉｔｙ ｉｓ ｄｅｐｅｎｄｅｎｔ ｕｐｏｎ ｔｈｅ ｉｎｄｕｓｔｒｙ ｉｎ ｗｈｉｃｈ ｔｈｅ ｃｏｍｐａｎｙ ｏｐｅｒａｔｅｓ. Ｔｈｅ ｑｕｉｃｋ (ａｃｉｄ-ｔｅｓｔ) ｒａｔｉｏ ｉｓ ａｎａｌｏｇｏｕｓ ｔｏ ｔｈｅ ｃｕｒｒｅｎｔ ｒａｔｉｏ ｅｘｃｅｐｔ ｔｈａｔ ｉｔ ｄｏｅｓ ｎｏｔ ｉｎｃｌｕｄｅ ｉｎｖｅｎｔｏｒｙ, ｗｈｉｃｈ ｉｓ ｍｏｓｔ ｏｆｔｅｎ ｔｈｅ ｌｅａｓｔ ｌｉｑｕｉｄ ｃｕｒｒｅｎｔ ａｓｓｅｔ. Ｔｈｅ ｑｕｉｃｋ ｒａｔｉｏ ｉｓ ｃａｌｃｕｌａｔｅｄ ｂｙ ｓｕｂｔｒａｃｔｉｎｇ ｔｈｅ ｆｉｒｍ'ｓ ｉｎｖｅｎｔｏｒｙ ｆｒｏｍ ｉｔｓ ｃｕｒｒｅｎｔ ａｓｓｅｔｓ ａｎｄ ｔｈｅｎ ｄｉｖｉｄｉｎｇ ｔｈａｔ ｒｅｓｕｌｔｉｎｇ ｎｕｍｂｅｒ ｂｙ ｔｈｅ ｆｉｒｍ'ｓ ｃｕｒｒｅｎｔ ｌｉａｂｉｌｉｔｉｅｓ. Ａ ｑｕｉｃｋ ｒａｔｉｏ ｏｆ 1.0 ｏｒ ｈｉｇｈｅｒ ｉｓ ｉｎｔｅｒｍｉｔｔｅｎｔｌｙ ｒｅｃｏｍｍｅｎｄｅｄ, ｂｕｔ, ｊｕｓｔ ｌｉｋｅ ｔｈｅ ｃｕｒｒｅｎｔ ｒａｔｉｏ, ｗｈａｔ ｖａｌｕｅ ｉｓ ｃｏｎｓｉｄｅｒｅｄ ａｄｅｑｕａｔｅ ｉｓ ｆｏｒ ｔｈｅ ｍｏｓｔ ｐａｒｔ ｄｅｐｅｎｄｅｎｔ ｏｎ ｔｈｅ ｉｎｄｕｓｔｒｙ. Ｔｈｅ ｑｕｉｃｋ ｒａｔｉｏ ｉｓ ａ ｂｅｔｔｅｒ ｇａｕｇｅ ｏｆ ｂｙ ａｎｄ ｌａｒｇｅ ｌｉｑｕｉｄｉｔｙ ｏｎｌｙ ｗｈｅｎ ａ ｃｏｍｐａｎｙ'ｓ ｉｎｖｅｎｔｏｒｙ ｃａｎｎｏｔ ｂｅ ｓｉｍｐｌｙ ｔｒａｎｓｆｏｒｍｅｄ ｉｎｔｏ ｃａｓｈ. Ｉｆ ｉｎｖｅｎｔｏｒｙ ｉｓ ｌｉｑｕｉｄ, ｔｈｅｎ ｔｈｅ ｃｕｒｒｅｎｔ ｒａｔｉｏ ｉｓ ｔｈｅ ｆａｖｏｒｅｄ ｍｅａｓｕｒｅｍｅｎｔ ｏｆ ｏｎ ｔｈｅ ｗｈｏｌｅ ｌｉｑｕｉｄｉｔｙ. (ｐ. 58-59) Ｔｈｅｒｅ ａｒｅ ｆｏｕｒ ｔｙｐｅｓ ｏｆ ａｃｔｉｖｉｔｙ ｒａｔｉｏｓ - ｉｎｖｅｎｔｏｒｙ ｔｕｒｎｏｖｅｒ, ａｖｅｒａｇｅ ｃｏｌｌｅｃｔｉｏｎ ｐｅｒｉｏｄ, ａｖｅｒａｇｅ ｐａｙｍｅｎｔ ｐｅｒｉｏｄ, ａｎｄ ｔｏｔａｌ ａｓｓｅｔ ｔｕｒｎｏｖｅｒ - ｗｈｉｃｈ ｍｅａｓｕｒｅ ｔｈｅ ｑｕｉｃｋｎｅｓｓ ｗｉｔｈ ｗｈｉｃｈ ｄｉｆｆｅｒｅｎｔ ａｃｃｏｕｎｔｓ ａｒｅ ｔｒａｎｓｆｏｒｍｅｄ ｉｎｔｏ ｓａｌｅｓ ｏｒ ｃａｓｈ. Ｉｎｖｅｎｔｏｒｙ ｔｕｒｎｏｖｅｒ ｔｙｐｉｃａｌｌｙ ｍｅａｓｕｒｅｓ ｔｈｅ ｍｏｖｅｍｅｎｔｓ, ｏｒ ｌｉｑｕｉｄｉｔｙ, ｏｆ ａ ｃｏｍｐａｎｙ'ｓ ｉｎｖｅｎｔｏｒｙ ｂｙ ｄｉｖｉｄｉｎｇ ｔｈｅ ｃｏｓｔ ｏｆ ｇｏｏｄｓ ｓｏｌｄ ｂｙ ｔｈｅ ｉｎｖｅｎｔｏｒｙ. Ｔｈｅ ｔｕｒｎｏｖｅｒ ａｍｏｕｎｔ ｔｈａｔ ｉｓ ｔｈｅ ｒｅｓｕｌｔ ｉｓ ｏｎｌｙ ｉｍｐｏｒｔａｎｔ ｗｈｅｎ ｉｔ ｉｓ ｃｏｎｔｒａｓｔｅｄ ｗｉｔｈ ｔｈａｔ ｏｆ ｏｔｈｅｒ ｃｏｍｐａｎｉｅｓ ｉｎ ｔｈｅ ｓａｍｅ ｉｎｄｕｓｔｒｙ ｏｒ ｔｏ ｔｈｅ ｃｏｍｐａｎｙ'ｓ ｐａｓｔ ｉｎｖｅｎｔｏｒｙ ｔｕｒｎｏｖｅｒ. Ｔｈｅ ａｖｅｒａｇｅ ｃｏｌｌｅｃｔｉｏｎ ｐｅｒｉｏｄ, ｏｒ ａｖｅｒａｇｅ ａｇｅ ｏｆ ａｃｃｏｕｎｔｓ ｒｅｃｅｉｖａｂｌｅ, ｉｓ ｖａｌｕａｂｌｅ ｉｎ ｅｖａｌｕａｔｉｎｇ ｃｒｅｄｉｔ ａｎｄ ｃｏｌｌｅｃｔｉｏｎ ｐｏｌｉｃｉｅｓ. Ｔｏ ｏｂｔａｉｎ ｔｈｉｓ ｖａｌｕｅ, ｔｈｅ ａｃｃｏｕｎｔｓ ｒｅｃｅｉｖａｂｌｅ ｉｓ ｄｉｖｉｄｅｄ ｂｙ ｔｈｅ ａｖｅｒａｇｅ ｓａｌｅｓ ｐｅｒ ｄａｙ (ａｎｎｕａｌ ｓａｌｅｓ ｄｉｖｉｄｅｄ ｂｙ 365). Ｔｈｅ ｒｅｓｕｌｔｉｎｇ ｎｕｍｂｅｒ ｗｉｌｌ ｓｉｇｎｉｆｙ ｈｏｗ ｍａｎｙ ｄａｙｓ ｉｔ ｔａｋｅｓ ｔｏ ｃｏｌｌｅｃｔ ａｎ ａｃｃｏｕｎｔ ｒｅｃｅｉｖａｂｌｅ, ｏｎ ａｖｅｒａｇｅ. Ｉｆ ａ ｃｏｍｐａｎｙ ｈａｓ 30-ｄａｙ ｃｒｅｄｉｔ ｔｅｒｍｓ ｗｉｔｈ ｉｔｓ ｃｌｉｅｎｔｓ ａｎｄ ｔｈｅｙ ｈａｖｅ ａｎ ａｖｅｒａｇｅ ｃｏｌｌｅｃｔｉｏｎ ｐｅｒｉｏｄ ｖａｌｕｅ ｏｆ 55, ｔｈｅｎ ｔｈａｔ ｍａｙ ｂｅ ａｎ ｓｉｇｎ ｏｆ ａｎ ｉｎａｄｅｑｕａｔｅｌｙ ｍａｎａｇｅｄ ｃｒｅｄｉｔ ｏｒ ｃｏｌｌｅｃｔｉｏｎ ｄｉｖｉｓｉｏｎ. Ｉｆ ｔｈｅ ｃｏｍｐａｎｙ ｆｉｎｄｓ ｔｈａｔ ａ 60-ｄａｙ ｃｒｅｄｉｔ ｔｅｒｍ ｗｏｕｌｄ ｂｅ ｗｏｒｔｈｗｈｉｌｅ, ｔｈｅｎ ｔｈｅ 55 ｄａｙｓ ｗｏｕｌｄ ｔｈｅｎ ｂｅｃｏｍｅ ｓａｔｉｓｆａｃｔｏｒｙ. Ｔｈｅ ａｖｅｒａｇｅ ｐａｙｍｅｎｔ ｐｅｒｉｏｄ, ｏｒ ａｖｅｒａｇｅ ａｇｅ ｏｆ ａｃｃｏｕｎｔｓ ｐａｙａｂｌｅ, ｉｓ ｃａｌｃｕｌａｔｅｄ ｊｕｓｔ ｌｉｋｅ ｔｈｅ ａｖｅｒａｇｅ ｃｏｌｌｅｃｔｉｏｎ ｐｅｒｉｏｄ, ｅｘｃｅｐｔ ｙｏｕ ａｒｅ ｄｉｖｉｄｉｎｇ ａｃｃｏｕｎｔｓ ｐａｙａｂｌｅ ｂｙ ｔｈｅ ａｖｅｒａｇｅ ｐｕｒｃｈａｓｅｓ ｐｅｒ ｄａｙ (ａｎｎｕａｌ ｐｕｒｃｈａｓｅｓ ｄｉｖｉｄｅｄ ｂｙ 365). Ｔｈｉｓ ｉｓ ａ ｔｒｉｃｋｙ ｖａｌｕｅ ｔｏ ｄｅｔｅｒｍｉｎｅ ｂｅｃａｕｓｅ ａ ｃｏｍｐａｎｙ'ｓ ａｎｎｕａｌ ｐｕｒｃｈａｓｅｓ ｉｓ ｎｏｔ ｐｒｅｓｅｎｔｅｄ ｉｎ ｆｉｎａｎｃｉａｌ ｓｔａｔｅｍｅｎｔｓ. Ｔｈｅｒｅｆｏｒｅ, ｐｕｒｃｈａｓｅｓ ａｒｅ ｔｙｐｉｃａｌｌｙ ａｎ ａｐｐｒｏｘｉｍａｔｉｏｎ ａｓ ａ ｇｉｖｅｎ ｐｅｒｃｅｎｔａｇｅ ｏｆ ｃｏｓｔ ｏｆ ｇｏｏｄｓ ｓｏｌｄ. Ｔｈｉｓ ｖａｌｕｅ ｉｓ ｓｉｇｎｉｆｉｃａｎｔ ｏｎｌｙ ｉｎ ｒｅｌａｔｉｏｎ ｔｏ ｔｈｅ ａｖｅｒａｇｅ ｃｒｅｄｉｔ ｔｅｒｍｓ ｇｉｖｅｎ ｔｏ ａ ｃｏｍｐａｎｙ. Ｗｈｅｎ ａ ｃｏｍｐａｎｙ ｉｓ ａｐｐｌｙｉｎｇ ｆｏｒ ｃｒｅｄｉｔ, ｃｒｅｄｉｔｏｒｓ ｗｉｌｌ ｂｅ ｍｏｓｔ ｉｎｔｅｒｅｓｔｅｄ ｉｎ ｔｈｉｓ ｖａｌｕｅ ｂｅｃａｕｓｅ ｉｔ ｐｒｏｖｉｄｅｓ ａ ｇｏｏｄ ｌｏｏｋ ｉｎｔｏ ｈｏｗ ａ ｃｏｍｐａｎｙ ｐａｙｓ ｉｔｓ ｂｉｌｌｓ. Ｉｆ ｔｈｅ ａｖｅｒａｇｅ ｐａｙｍｅｎｔ ｐｅｒｉｏｄ ｉｓ 10 ｄａｙｓ ａｎｄ ｔｈｅ ｃｏｍｐａｎｙ ｈａｓ 30-ｄａｙ ｔｅｒｍｓ ａｃｒｏｓｓ ｔｈｅ ｂｏａｒｄ, ｔｈｅｎ ｔｈｅｉｒ ｃｒｅｄｉｔ ｒａｔｉｎｇ ｗｉｌｌ ｂｅ ｍｕｃｈ ｈｉｇｈｅｒ ｔｈａｎ ｉｆ ｔｈｅ ｖａｌｕｅ ｗａｓ 50. Ｔｈｅ ｔｏｔａｌ ａｓｓｅｔ ｔｕｒｎｏｖｅｒ ｓｈｏｗｓ ｔｈｅ ｅｆｆｉｃｉｅｎｃｙ ｗｉｔｈ ｗｈｉｃｈ ａ ｃｏｍｐａｎｙ ｕｓｅｓ ｉｔｓ ａｓｓｅｔｓ ｔｏ ｐｒｏｄｕｃｅ ｓａｌｅｓ. Ｔｈｉｓ ｖａｌｕｅ ｉｓ ｄｅｒｉｖｅｄ ｂｙ ｄｉｖｉｄｉｎｇ ｓａｌｅｓ ｂｙ ｔｏｔａｌ ａｓｓｅｔｓ. Ｍｏｓｔ ｏｆｔｅｎ, ｔｈｅ ｈｉｇｈｅｒ ａ ｃｏｍｐａｎｙ'ｓ ｔｏｔａｌ ａｓｓｅｔ ｔｕｒｎｏｖｅｒ, ｔｈｅ ｍｏｒｅ ｒｅｓｏｕｒｃｅｆｕｌｌｙ ｉｔｓ ｍａｔｅｒｉａｌ ｇｏｏｄｓ ｈａｖｅ ｂｅｅｎ ｕｓｅｄ. Ｔｏｔａｌ ａｓｓｅｔ ｔｕｒｎｏｖｅｒ ｉｓ ｐｒｏｂａｂｌｙ ｔｈｅ ｍｏｓｔ ｉｍｐｏｒｔａｎｔ ｒａｔｉｏ ｔｏ ｍａｎａｇｅｍｅｎｔ ａｓ ｉｔ ｓｈｏｗｓ ｉｆ ａ ｃｏｍｐａｎｙ'ｓ ａｃｔｉｏｎｓ ｈａｖｅ ｂｅｅｎ ｆｉｎａｎｃｉａｌｌｙ ｅｆｆｉｃｉｅｎｔ. (ｐ. 59-62) Ｄｅｂｔ ｒａｔｉｏｓ ｏｆｆｅｒ ａｎａｌｙｓｔｓ ｔｈｅ ａｂｉｌｉｔｙ ｔｏ ｓｅｅ ｔｈｅ ｑｕａｎｔｉｔｙ ｏｆ ｍｏｎｅｙ ａ ｃｏｍｐａｎｙ ｉｓ ｕｓｉｎｇ ｔｏ ｐｒｏｄｕｃｅ ｐｒｏｆｉｔｓ ｔｈａｔ ｉｓ ｃｏｍｉｎｇ ｆｒｏｍ ｏｕｔｓｉｄｅ ｓｏｕｒｃｅｓ. Ｔｈｅｒｅ ａｒｅ ｔｈｒｅｅ ｔｙｐｅｓ ｏｆ ｄｅｂｔ ｒａｔｉｏｓ: ｄｅｂｔ ｒａｔｉｏ, ｔｉｍｅｓ ｉｎｔｅｒｅｓｔ ｅａｒｎｅｄ ｒａｔｉｏ, ａｎｄ ｆｉｘｅｄ-ｐａｙｍｅｎｔ ｃｏｖｅｒａｇｅ ｒａｔｉｏ. Ｔｈｅ ｄｅｂｔ ｒａｔｉｏ ｍｅａｓｕｒｅｓ ｔｈｅ ｆｒａｃｔｉｏｎ ｏｆ ｔｏｔａｌ ａｓｓｅｔｓ ｆｉｎａｎｃｅｄ ｂｙ ｔｈｅ ｃｏｍｐａｎｙ'ｓ ｃｒｅｄｉｔｏｒｓ. Ｔｈｉｓ ｉｓ ｃａｌｃｕｌａｔｅｄ ｂｙ ｄｉｖｉｄｉｎｇ ｔｏｔａｌ ｌｉａｂｉｌｉｔｉｅｓ ｂｙ ｔｏｔａｌ ａｓｓｅｔｓ ａｎｄ ｔｈｅ ｈｉｇｈｅｒ ｔｈｅ ｒｅｓｕｌｔｉｎｇ ｎｕｍｂｅｒ, ｔｈｅ ｇｒｅａｔｅｒ ｔｈｅ ａｍｏｕｎｔ ｏｆ ｏｕｔｓｉｄｅ ｍｏｎｅｙ ｉｓ ｂｅｉｎｇ ｕｓｅｄ ｔｏ ｐｒｏｄｕｃｅ ｐｒｏｆｉｔｓ. Ｔｈｅ ｔｉｍｅｓ ｉｎｔｅｒｅｓｔ ｅａｒｎｅｄ ｒａｔｉｏ ｇａｕｇｅｓ ａ ｃｏｍｐａｎｙ'ｓ ａｂｉｌｉｔｙ ｔｏ ｍａｋｅ ａｇｒｅｅｄ ｕｐｏｎ ｉｎｔｅｒｅｓｔ ｐａｙｍｅｎｔｓ. Ｔｈｉｓ ｉｓ ｃａｌｃｕｌａｔｅｄ ｂｙ ｄｉｖｉｄｉｎｇ ｅａｒｎｉｎｇｓ ｂｅｆｏｒｅ ｉｎｔｅｒｅｓｔ ａｎｄ ｔａｘｅｓ ｂｙ ｉｎｔｅｒｅｓｔ ａｎｄ ｔｈｅ ｈｉｇｈｅｒ ｔｈｅ ｒｅｓｕｌｔｉｎｇ ｖａｌｕｅ, ｔｈｅ ｍｏｒｅ ｃａｐａｂｌｅ ｔｈｅ ｃｏｍｐａｎｙ ｉｓ ｔｏ ｃａｒｒｙ ｏｕｔ ｉｔｓ ｉｎｔｅｒｅｓｔ ｒｅｓｐｏｎｓｉｂｉｌｉｔｉｅｓ. Ａ ｒｅｓｕｌｔｉｎｇ ｎｕｍｂｅｒ ｏｆ ａｔ ｌｅａｓｔ 3.0 ｉｓ ｏｆｔｅｎ ｒｅｃｏｍｍｅｎｄｅｄ, ａｌｔｈｏｕｇｈ 5.0 ｉｓ ｔｈｅ ｍｏｒｅ ｐｒｅｆｅｒｒｅｄ ｖａｌｕｅ. Ｔｈｅ ｆｉｘｅｄ-ｐａｙｍｅｎｔ ｃｏｖｅｒａｇｅ ｒａｔｉｏ ｍｅａｓｕｒｅｓ ａ ｃｏｍｐａｎｙ'ｓ ａｂｉｌｉｔｙ ｔｏ ｍｅｅｔ ａｌｌ ｉｔｓ ｆｉｘｅｄ-ｐａｙｍｅｎｔｓ ｃｏｍｍｉｔｍｅｎｔｓ, ｓｕｃｈ ａｓ ｌｅａｓｅ ｐａｙｍｅｎｔｓ, ｌｏａｎ ｉｎｔｅｒｅｓｔ ａｎｄ ｐｒｉｎｃｉｐａｌ, ａｎｄ ｐｒｅｆｅｒｒｅｄ ｓｔｏｃｋ ｄｉｖｉｄｅｎｄｓ. Ｊｕｓｔ ｌｉｋｅ ｗｉｔｈ ｔｈｅ ｔｉｍｅｓ ｉｎｔｅｒｅｓｔ ｅａｒｎｅｄ ｒａｔｉｏ, ｔｈｅ ｈｉｇｈｅｒ ｔｈｅ ｒｅｓｕｌｔｉｎｇ ｖａｌｕｅ, ｔｈｅ ｂｅｔｔｅｒ. Ｔｏ ｃａｌｃｕｌａｔｅ ｔｈｉｓ, ｔｈｅ ｓｕｍ ｏｆ ｅａｒｎｉｎｇｓ ｂｅｆｏｒｅ ｉｎｔｅｒｅｓｔ & ｔａｘｅｓ ａｎｄ ｌｅａｓｅ ｐａｙｍｅｎｔｓ ｉｓ ｄｉｖｉｄｅｄ ｂｙ ｔｈｅ ｓｕｍ ｏｆ ｉｎｔｅｒｅｓｔ, ｌｅａｓｅ ｐａｙｍｅｎｔｓ, ａｎｄ ｔｈｅ ｐｒｏｄｕｃｔ ｏｆ ｔｈｅ ｓｕｍ ｏｆ ｐｒｉｎｃｉｐａｌ ｐａｙｍｅｎｔｓ ａｎｄ ｐｒｅｆｅｒｒｅｄ ｓｔｏｃｋ ｄｉｖｉｄｅｎｄｓ ａｎｄ 1 ｄｉｖｉｄｅｄ ｂｙ 1 ｍｉｎｕｓ ｔｈｅ ｃｏｒｐｏｒａｔｅ ｔａｘ ｒａｔｅ ａｐｐｌｉｃａｂｌｅ ｔｏ ｔｈｅ ｃｏｍｐａｎｙ'ｓ ｉｎｃｏｍｅ. (ｐ. 62-65) Ｐｒｏｆｉｔａｂｉｌｉｔｙ ｒａｔｉｏｓ ａｌｌｏｗ ａｎａｌｙｓｔｓ ｔｏ ｍｅａｓｕｒｅ ａ ｃｏｍｐａｎｙ'ｓ ｐｒｏｆｉｔｓ ｗｉｔｈ ｒｅｇａｒｄｓ ｔｏ ａ ｇｉｖｅｎ ａｍｏｕｎｔ ｏｆ ｓａｌｅｓ, ｐａｒｔｉｃｕｌａｒ ａｍｏｕｎｔ ｏｆ ａｓｓｅｔｓ, ｏｒ ｔｈｅ ｏｗｎｅｒ'ｓ ｉｎｖｅｓｔｍｅｎｔ. Ｔｈｅｒｅ ａｒｅ ｓｅｖｅｎ ｐｒｏｆｉｔａｂｉｌｉｔｙ ｒａｔｉｏｓ: ｃｏｍｍｏｎ-ｓｉｚｅ ｉｎｃｏｍｅ ｓｔａｔｅｍｅｎｔｓ, ｇｒｏｓｓ ｐｒｏｆｉｔ ｍａｒｇｉｎ, ｏｐｅｒａｔｉｎｇ ｐｒｏｆｉｔ ｍａｒｇｉｎ, ｎｅｔ ｐｒｏｆｉｔ ｍａｒｇｉｎ, ｅａｒｎｉｎｇｓ ｐｅｒ ｓｈａｒｅ (ＥＰＳ), ｒｅｔｕｒｎ ｏｎ ｔｏｔａｌ ａｓｓｅｔｓ (ＲＯＡ), ａｎｄ ｒｅｔｕｒｎ ｏｎ ｃｏｍｍｏｎ ｅｑｕｉｔｙ (ＲＯＥ). Ａ ｃｏｍｍｏｎ-ｓｉｚｅ ｉｎｃｏｍｅ ｓｔａｔｅｍｅｎｔ ｉｓ ａｎ ｉｎｃｏｍｅ ｓｔａｔｅｍｅｎｔ ｗｈｅｒｅ ｅａｃｈ ｉｔｅｍ ｉｓ ｓｈｏｗｎ ａｓ ａ ｐｒｏｐｏｒｔｉｏｎ ｏｆ ｓａｌｅｓ. Ｔｈｅ ｇｒｏｓｓ ｐｒｏｆｉｔ ｍａｒｇｉｎ ｍｅａｓｕｒｅｓ ｔｈｅ ｆｒａｃｔｉｏｎ ｏｆ ｅｖｅｒｙ ｓａｌｅｓ ｄｏｌｌａｒ ａｆｔｅｒ ａ ｃｏｍｐａｎｙ ｈａｓ ｐａｉｄ ｆｏｒ ｉｔｓ ｍｅｒｃｈａｎｄｉｓｅ. Ｔｈｉｓ ｖａｌｕｅ ｉｓ ｄｅｒｉｖｅｄ ｂｙ ｄｉｖｉｄｉｎｇ ｔｈｅ ｒｅｍａｉｎｄｅｒ ｏｆ ｓａｌｅｓ ｍｉｎｕｓ ｃｏｓｔ ｏｆ ｇｏｏｄｓ ｓｏｌｄ ｂｙ ｓａｌｅｓ. Ｔｈｅ ｏｐｅｒａｔｉｎｇ ｐｒｏｆｉｔ ｍａｒｇｉｎ ｍｅａｓｕｒｅｓ ｔｈｅ ｐｒｏｐｏｒｔｉｏｎ ｏｆ ｅｖｅｒｙ ｓａｌｅｓ ｄｏｌｌａｒ ｌｅｆｔ ｏｖｅｒ ａｆｔｅｒ ａｌｌ ｃｏｓｔｓ ａｎｄ ｅｘｐｅｎｓｅｓ, ｎｏｔ ｉｎｃｌｕｄｉｎｇ ｉｎｔｅｒｅｓｔ, ｔａｘｅｓ, ａｎｄ ｐｒｅｆｅｒｒｅｄ ｓｔｏｃｋ ｄｉｖｉｄｅｎｄｓ, ａｒｅ ｒｅｍｏｖｅｄ. Ｔｈｉｓ ｉｓ ｃａｌｃｕｌａｔｅｄ ｂｙ ｄｉｖｉｄｉｎｇ ｏｐｅｒａｔｉｎｇ ｐｒｏｆｉｔｓ ｂｙ ｓａｌｅｓ. Ｔｈｅ ｎｅｔ ｐｒｏｆｉｔ ｍａｒｇｉｎ ｍｅａｓｕｒｅｓ ｔｈｅ ｐｅｒｃｅｎｔａｇｅ ｏｆ ｅｖｅｒｙ ｓａｌｅｓ ｄｏｌｌａｒ ｌｅｆｔ ｏｖｅｒ ａｆｔｅｒ ａｌｌ ｃｏｓｔｓ ａｎｄ ｅｘｐｅｎｓｅｓ, ｔｈｉｓ ｔｉｍｅ ｉｎｃｌｕｄｉｎｇ ｉｎｔｅｒｅｓｔ, ｔａｘｅｓ, ａｎｄ ｐｒｅｆｅｒｒｅｄ ｓｔｏｃｋ ｄｉｖｉｄｅｎｄｓ, ｈａｖｅ ｂｅｅｎ ｓｕｂｔｒａｃｔｅｄ. Ｔｈｉｓ ｉｓ ｃａｌｃｕｌａｔｅｄ ｂｙ ｄｉｖｉｄｉｎｇ ｅａｒｎｉｎｇｓ ａｖａｉｌａｂｌｅ ｆｏｒ ｃｏｍｍｏｎ ｓｔｏｃｋｈｏｌｄｅｒｓ ｂｙ ｓａｌｅｓ. Ｔｈｅ ＥＰＳ ｃｈａｒａｃｔｅｒｉｚｅｓ ｔｈｅ ｄｏｌｌａｒ ｑｕａｎｔｉｔｙ ｅａｒｎｅｄ ｏｎ ｔｈｅ ｐａｒｔ ｏｆ ｅｖｅｒｙ ｏｕｔｓｔａｎｄｉｎｇ ｓｈａｒｅ ｏｆ ｃｏｍｍｏｎ ｓｔｏｃｋ. Ｉｔ ｉｓ ｃａｌｃｕｌａｔｅｄ ｂｙ ｄｉｖｉｄｉｎｇ ｅａｒｎｉｎｇｓ ａｖａｉｌａｂｌｅ ｆｏｒ ｃｏｍｍｏｎ ｓｔｏｃｋｈｏｌｄｅｒｓ ｂｙ ｔｈｅ ｎｕｍｂｅｒ ｏｆ ｓｈａｒｅｓ ｏｆ ｃｏｍｍｏｎ ｓｔｏｃｋ ｏｕｔｓｔａｎｄｉｎｇ. Ｔｈｅ ＲＯＡ ｍｅａｓｕｒｅｓ ｔｈｅ ｏｎ ｔｈｅ ｗｈｏｌｅ ｅｆｆｅｃｔｉｖｅｎｅｓｓ ｏｆ ａ ｃｏｍｐａｎｙ'ｓ ｍａｎａｇｅｍｅｎｔ ｉｎ ｐｒｏｄｕｃｉｎｇ ｐｒｏｆｉｔｓ ｗｉｔｈ ｉｔｓ ａｃｃｅｓｓｉｂｌｅ ａｓｓｅｔｓ. Ｔｈｉｓ ｉｓ ｄｅｒｉｖｅｄ ｂｙ ｄｉｖｉｄｉｎｇ ｔｈｅ ｅａｒｎｉｎｇｓ ａｖａｉｌａｂｌｅ ｆｏｒ ｃｏｍｍｏｎ ｓｔｏｃｋｈｏｌｄｅｒｓ ｂｙ ｔｈｅ ｔｏｔａｌ ａｓｓｅｔｓ. Ｔｈｅ ＲＯＥ ｇａｕｇｅｓ ｔｈｅ ｒｅｔｕｒｎ ｅａｒｎｅｄ ｏｎ ｔｈｅ ｃｏｍｍｏｎ ｓｔｏｃｋｈｏｌｄｅｒｓ' ｉｎｖｅｓｔｍｅｎｔ ｉｎ ｔｈｅ ｃｏｍｐａｎｙ. Ｔｈｉｓ ｉｓ ｃａｌｃｕｌａｔｅｄ ｂｙ ｄｉｖｉｄｉｎｇ ｔｈｅ ｅａｒｎｉｎｇｓ ａｖａｉｌａｂｌｅ ｆｏｒ ｃｏｍｍｏｎ ｓｔｏｃｋｈｏｌｄｅｒｓ ｂｙ ｔｈｅ ｃｏｍｍｏｎ ｓｔｏｃｋ ｅｑｕｉｔｙ. (ｐ. 65-69) Ｍａｒｋｅｔ ｒａｔｉｏｓ ｃｏｍｐａｒｅ ａ ｃｏｍｐａｎｙ'ｓ ｍａｒｋｅｔ ｖａｌｕｅ ｔｏ ｐａｒｔｉｃｕｌａｒ ａｃｃｏｕｎｔｉｎｇ ｃｏｓｔｓ, ａｓ ｍｅａｓｕｒｅｄ ｂｙ ｉｔｓ ｐｒｅｓｅｎｔ ｓｈａｒｅ ｐｒｉｃｅ. Ｔｈｅｒｅ ａｒｅ ｔｗｏ ｍａｒｋｅｔ ｒａｔｉｏｓ: ｐｒｉｃｅ/ｅａｒｎｉｎｇｓ (Ｐ/Ｅ) ｒａｔｉｏ ａｎｄ ｍａｒｋｅｔ/ｂｏｏｋ (Ｍ/Ｂ) ｒａｔｉｏ. Ｔｈｅ Ｐ/Ｅ ｒａｔｉｏ ｍｅａｓｕｒｅｓ ｔｈｅ ｑｕａｎｔｉｔｙ ｔｈａｔ ｉｎｖｅｓｔｏｒｓ ａｒｅ ｐｒｅｐａｒｅｄ ｔｏ ｐａｙ ｆｏｒ ｅａｃｈ ｄｏｌｌａｒ ｏｆ ａ ｃｏｍｐａｎｙ'ｓ ｅａｒｎｉｎｇｓ. Ｗｉｔｈ ａ ｈｉｇｈｅｒ Ｐ/Ｅ ｒａｔｉｏ ｃｏｍｅｓ ｈｉｇｈｅｒ ｉｎｖｅｓｔｏｒ ａｓｓｕｒａｎｃｅ. Ｔｈｉｓ ｉｓ ｃａｌｃｕｌａｔｅｄ ｂｙ ｄｉｖｉｄｉｎｇ ｔｈｅ ｍａｒｋｅｔ ｐｒｉｃｅ ｐｅｒ ｓｈａｒｅ ｏｆ ｃｏｍｍｏｎ ｓｔｏｃｋ ｂｙ ｔｈｅ ｅａｒｎｉｎｇｓ ｐｅｒ ｓｈａｒｅ. Ｔｈｅ Ｍ/Ｂ ｒａｔｉｏ ｇｉｖｅｓ ａｎ ｅｖａｌｕａｔｉｏｎ ｏｆ ｈｏｗ ｉｎｖｅｓｔｏｒｓ ｓｅｅ ａ ｃｏｍｐａｎｙ'ｓ ｐｅｒｆｏｒｍａｎｃｅ. Ｉｎ ｏｒｄｅｒ ｔｏ ｃａｌｃｕｌａｔｅ ｔｈｅ Ｍ/Ｂ ｒａｔｉｏ, ｔｈｅ ｂｏｏｋ ｖａｌｕｅ ｐｅｒ ｓｈａｒｅ ｏｆ ｃｏｍｍｏｎ ｓｔｏｃｋ ｍｕｓｔ ｆｉｒｓｔ ｂｅ ｃａｌｃｕｌａｔｅｄ, ｗｈｉｃｈ ｉｓ ｄｏｎｅ ｂｙ ｄｉｖｉｄｉｎｇ ｃｏｍｍｏｎ ｓｔｏｃｋ ｅｑｕｉｔｙ ｂｙ ｔｈｅ ｎｕｍｂｅｒ ｏｆ ｓｈａｒｅｓ ｏｆ ｃｏｍｍｏｎ ｓｔｏｃｋ ｏｕｔｓｔａｎｄｉｎｇ. Ｔｈｅｎ, ｔｏ ｆｉｇｕｒｅ ｏｕｔ ｔｈｅ Ｍ/Ｂ ｒａｔｉｏ, ｔｈｅ ｍａｒｋｅｔ ｐｒｉｃｅ ｐｅｒ ｓｈａｒｅ ｏｆ ｃｏｍｍｏｎ ｓｔｏｃｋ ｉｓ ｄｉｖｉｄｅｄ ｂｙ ｔｈｅ ｂｏｏｋ ｖａｌｕｅ ｐｅｒ ｓｈａｒｅ ｏｆ ｃｏｍｍｏｎ ｓｔｏｃｋ. (ｐ. 69-70) Ａｌｌ ｏｆ ｔｈｅｓｅ ｆｉｎａｎｃｉａｌ ｒａｔｉｏｓ ｃａｎ ｂｅ ｕｔｉｌｉｚｅｄ ｔｏ ｇｉｖｅ ａｎ ｉｄｅａ ｏｆ ｔｈｅ ｆｉｎａｎｃｉａｌ ｓｔｒｅｎｇｔｈ ｏｆ ａ ｃｏｍｐａｎｙ. Ｍａｎａｇｅｒｓ ｃａｎ ｕｓｅ ｔｈｅｓｅ ｎｕｍｂｅｒｓ ｔｏ ｅｖａｌｕａｔｅ ｔｈｅｉｒ ｏｗｎ ｐｒｏｃｅｓｓｅｓ, ｐｏｌｉｃｉｅｓ, ａｎｄ ｐｅｒｆｏｒｍａｎｃｅ. Ｐｏｔｅｎｔｉａｌ ｉｎｖｅｓｔｏｒｓ ｃａｎ ｕｔｉｌｉｚｅ ｔｈｅｓｅ ｎｕｍｂｅｒｓ ｔｏ ｄｅｃｉｄｅ ｗｈｅｔｈｅｒ ｏｒ ｎｏｔ ｔｈｅｙ ｗａｎｔ ｔｏ ｉｎｖｅｓｔ. Ｐｏｔｅｎｔｉａｌ ｃｒｅｄｉｔｏｒｓ ｃａｎ ｂａｓｅ ｔｈｅｉｒ ｄｅｃｉｓｉｏｎｓ ｏｎ ｗｈｅｔｈｅｒ ｔｏ ｅｘｔｅｎｄ ｃｒｅｄｉｔ ｏｆｆ ｏｆ ｔｈｅｓｅ ｆｉｎａｎｃｉａｌ ｒａｔｉｏｓ. Ｒａｔｉｏｓ ａｒｅ ａｎ ｅａｓｙ ｗａｙ ｔｏ ｃｏｍｐａｒｅ ｔｗｏ ｃｏｍｐａｎｉｅｓ ｉｎ ｔｈｅ ｓａｍｅ ｉｎｄｕｓｔｒｙ ａｓ ｗｅｌｌ ａｓ ａｎ ｅａｓｙ ｗａｙ ｆｏｒ ａ ｃｏｍｐａｎｙ ｔｏ ｍｅａｓｕｒｅ ｉｔｓｅｌｆ ａｇａｉｎｓｔ ｉｔｓ ｏｗｎ ｐａｓｔ ｐｅｒｆｏｒｍａｎｃｅ. Ｒｅｆｅｒｅｎｃｅｓ Ｇｉｔｍａｎ, Ｌ. (2009). Ｐｒｉｎｃｉｐｌｅｓ ｏｆ Ｍａｎａｇｅｒｉａｌ Ｆｉｎａｎｃｅ (12ｔｈ ｅｄ.). Ｐｅａｒｓｏｎ Ｐｒｅｎｔｉｃｅ Ｈａｌｌ: Ｂｏｓｔｏｎ, ＭＡ |
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