Explain functional classification of ratios, Managerial Accounting

Assignment Help:

Explain Functional classification

a)  Liquidity ratio: these are the ratio which measures the short term solvency or financial position of a firm. These ratios are calculation to comment upon the short term paying capacity of a concem or the firm's ability to meet its current obligations. The various liquidity ratios are current ratio liquid ratio and absolute liquid ratio. Father to see the efficiency with which the liquid resources have been employed by a firm debtor s turnover and creditor's turnover ratios are calculated.

b) Long term solvency and leverage ratio: longer term solvency ratios convey a firm ability debt equity ratio interest coverage ratio and leverage ratio. Show the proportions of debt equity in financing of the firm. These ratios measure the contribution of financing by outsiders. The leverage ratios can further be classified as:

Financial leverage

Operating leverage

Composite leverage

c) Activity ratios: activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed. These ratio are also called turnover ratios because they indicate the speed with which assets are being turned over into sales e.g., debtor turnover ratio. The various activity or turnover ratios have been named in the chart classifying the ratios.

d) Profitability ratios: these ratios measure the result of business operation or overall performance and effectiveness of the firm e.g., gross profit ratio or return on capital employed. The various profitability ratio have been given in the chart exhibiting the classification of ratios according to test. Generally two types of profitability ratios calculated are

In relation to sales and

In relation to investments

 


Related Discussions:- Explain functional classification of ratios

Marginal costing variances, reasons for favourable or adverse variances i....

reasons for favourable or adverse variances i.e. prise usage, mix, yeild

Bussiness.., #queThe following information pertains to Fairways Driving Ran...

#queThe following information pertains to Fairways Driving Range, Inc.: The company is considering operating a new driving range facility in Sanford, FL. In order to do so, they

Break Even Sales in Units, Kibble Company had the following functional inco...

Kibble Company had the following functional income statement for the month of July 2011: Kibble Company Functional Income Statement For the Month Ending July 31, 2011 Sales ($40 x

Optimum solution, Optimum Solution From the stand point of implementing...

Optimum Solution From the stand point of implementing the LP solution, the mathematical classification of the variables as basic and non-basic is of no importance and should be

Explain operating budgets, Explain Operating budgets These budgets rela...

Explain Operating budgets These budgets relate to the dissimilar activities or operation of a firm the number of such budgets depends upon the size and nature of business. The

Strategic plan, How to write introduction on strategy plan

How to write introduction on strategy plan

Advise c''man on the form of business entity he should select, Coleman, a m...

Coleman, a married taxpayer, is going to establish a manufacturing business. He anticipates that the business will be profitable immediately due to a patent he holds. He predicts t

Status resources, Status Resources We had classified constraints as sca...

Status Resources We had classified constraints as scarce and abundant, depending respectively on whether or not the optimum solution "consumes" the entire available amount of t

Public deposits, Deposits from the public are one of the important sources ...

Deposits from the public are one of the important sources of finance mainly for fine established big companies along with a vast capital base. The period of public deposits is rest

Length of operating or working capital cycle, Change of Technology: Change...

Change of Technology: Changes in technology commonly leads to improvements in the efficient processing of raw material, reduce in wastages, more speedy production and higher produ

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd