#+title: Section 6 | Lesson 36 - Financial Rations, Leverage
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* Links
- [[./../mba-main.org][TOC | Business]]
- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4282978#overview][S06:L36 Financial Ratios]]

* Notes

** Liquidity Ratios
*** basics
  - also called "Liquidity"
  - measure our ability to pay short term debt
  - get a loan

*** Current Ratio
- \( \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} \).

- if it is positive, then the banks think you can pay your bills

*** quick ratio
- \( \text{Quick Ratio} = \frac{\text{Current Ratio} - \text{inventory}}{\text{Current Liabilities}}\)
- used in case the inventory has to be discounted (ie the inventory just got recalled)

** Leverage Ratios
*** EBITDA
- *definition:* Earnings Before Interest Taxes, Depreciation and Amoritization
- *formula:*
  - \( \text{EBITDA} = \text{Net Income} + \text{Interest} + \text{Taxes} + \text{Depreciation} + \text{Amoritization}\)

  - \( \text{EBITDA} = \text{Operating Income} +  \text{Depreciation} + \text{Amoritization}\)

*** Debt to total assets = debt / assets
*** Interest coverage = EBITDA / interest
  - Earnings Before Interest Taxes Depreciation and Amoritization
