What is Asset Turnover Ratio?The assets turnover ratio explains the turnover of assets into sales. It is an efficiency ratio that implies a firm’s ability to generate sales from the assets. For this purpose, the net sales figure is compared with the total average assets.The total asset turnover ratio measures ... Read More

What is Current Ratio?The correct way to measure the current ratio is to divide current assets by current liabilities.$$\mathrm{Current\: Ratio\:=\:\frac{Current\: Assets}{Current\: Liabilities}}$$Here, current assets include items that are short-term in nature. Both assets and liabilities in the current ratio are meant for items that exist within one year from the ... Read More

What is a Quick Ratio?Cash is an indispensable resource for business firms as cash works as a fuel to run business operations successfully. Lack of cash may push a company to insolvency which is an inability to pay the current expenses. Long-term insolvency may push firms to bankruptcy. Therefore, knowing ... Read More

Leverage ratios show the debt position of a company. Debt is an important part of finance for a firm. While debt is necessary to fund projects, excessive debt can be a sign of financial illness of a firm. In fact, both excess and too less availability of debt is detrimental ... Read More

Purpose of Leverage Ratio CalculationTo determine the long-term financial position of a company, its financial leverage is calculated. The method of increasing shareholder’s return using debt is known as Financial Leverage. Leverage ratios are, thus, connected to the processes where debt is used to magnify the shareholder’s returns.In fact, excessive ... Read More

What is Liquidity Ratio?The ratio which measures the capability of a firm to meet its current obligation is known as liquidity ratio. This ratio derived its name from ‘liquidity’ referring to ‘the cash deposits available’.As a result, liquidity ratios are helpful in determining the firm’s ability to meet its short- ... Read More

What is Leverage Ratio?Creditors and lenders invest money in a firm looking for returns at different points in time. Short-term creditors, such as bankers and raw materials suppliers are usually more interested in the short-term liquidity of the firms they invest in. On the other hand, the long-time creditors, such ... Read More

Pro-Forma Ratio AnalysisPro-forma is a Latin word meaning ‘for the sake of form’. A Pro-forma analysis is a way to project the financials of a firm in a future period. In order to create Pro-forma analysis historical data is used as the base of accounting. Therefore, Pro-forma ratio analysis can ... Read More

Although people consider cross-sectional and time-series analysis to be the same; however, they are totally different in many aspects.Based on Use and Nature of DataThe main difference between cross-sectional and time series analysis is in their use of data. Moreover, the data collected for time series and cross-sectional analysis are ... Read More

What is Cross-Sectional Analysis?Cross-Sectional analysis is one of the handiest tools in comparing the performance of companies. Usually, companies within a given industry are tested with a chosen metric in cross-sectional analysis. It is not only correct, but it is also quite accurate in measuring the true financial potential of ... Read More