1.1 KiB
1.1 KiB
Section 6 | Lesson 36 - Financial Rations, Leverage
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
- Debt to total assets = debt / assets
-
Interest coverage = EBITDA / interest
- Earnings Before Interest Taxes Depreciation and Amoritization