Accounting Ratios or Financial Ratios is nothing but mathematical analyses of business statement or sections. MyAccountingLab is a leader which provides the connections between the financial statement descriptions encourage investors, lenders, and private company administration to understand how great business is doing and of fields requiring improvement and how they can maintain their financial management to improve their revenues.
MyAccountingLab is a hub of financial services which has Financial or Accounting ratios are the very standard and comprehensive tools applied to examine a business’ financial status. MyAccountingLab gives a room for users to find what financial services actually do. Ratios are straightforward to understand and easy to calculate. They can additionally be practiced to compare several companies in various industries. Since a ratio is just a mathematical equation based on balances, big and small businesses can use ratios to analyze their financial knowledge. In a judgment through MyAccountingLab, financial ratios don’t get into cause the proportion of a company or the enterprise. Ratios are just a natural calculation of financial status and performance.
Ratios enable us to connect companies beyond industries, large and small, to recognize their strengths and inclinations. People are curious to know the types of financial ratios and their formulas, and MyAccountingLab is going to explain it in our articles. Financial ratios are usually divided up into seven main sections, and you can call it Accounting Concepts or Accounting Standards:
- Liquidity Ratio
- Solvency Ratio
- Efficiency Ratio
- Profitability Ratio
- Market Prospect Ratio
- Financial Leverage Ratio
- Coverage Ratio
These are the Ratios for Financial Analysis, which help Chartered Accountant, Enterprises, Individuals, Organization, etc. to maintain their Management Ratios. MyAccountingLab is a process which helps people to gain their financial knowledge. It is a hub of finance. MyAccountingLab covers all the topics and matters of finance.
1. Liquidity Ratio:
Liquidity ratios examine the strength of a business to pay off both its CL (Current Liabilities) as they become outstanding as well as their long-term liabilities as they convert current. In MyAccountingLab words, these ratios determine the cash levels of a business and the experience to turn other assets into cash within a short period of time to pay off liabilities and other current debts.
Liquidity is not just a standard of how much money a business holds. It is also a means of how comfortable it will be for the business to raise sufficient cash or turn assets into cash. Assets like AR, selling securities, and stocks are comparatively easy for many businesses to convert into cash in the short period. Thus, all of these assets move into the liquidity estimation of business.
Here are the list and explanation of most common liquidity ratios by MyAccountingLab:
Quick Ratio by MyAccountingLab:
MyAccountingLab provides an explanation where the Acid test ratio or what it has known as Quick Ratio is a part of liquidity ratio that contains the strength of a business to meet its current liabilities when they come outstanding with solely quick assets. Quick assets are nothing, but these are the current assets which can be converted into cash within a short period of 90 days. Quick assets considered Cash and cash equivalents, Investments of Short-term or marketable securities and any current account receivables.
The acid test ratio is another name of quick ratio. In past decades, Early miners use acid test ratio to test metal for gold. If the metal failed the test, it was considered as a base metal and no value. If metal passed the test then has considered as pure gold.
The quick ratio of MyAccountingLab or Finance determines how well a business can quickly turn its assets into cash to meet its current liabilities. It also shows the level of measuring current liabilities to its Quick assets.
The quick ratio or acid test ratio has calculated by adding cash equivalents, cash, current receivables and short-term investment and after that divided it by current liabilities.
Sometimes business financial reports or balance sheet don’t have a breakdown of quick assets. In this situation, you can still calculate the acid test ratio or quick ratio even if few of the quick asset totals are not available or unknown. Just minus the inventory and prepaid expenses of current assets and divide it by current liabilities. For Instance,
Let’s take an example here via MyAccountingLab, suppose Wings fly wooden Store applied for a loan to buy extra stock. The bank demands Wings fly’s owner for a complete balance sheet so that it can calculate the quick ratio. Wings fly’s balance sheet involved the following accounts:
Accounts Receivable: $10,000
Stock Investments: $10,000
Prepaid taxes: $5000
Current Liabilities: $150,000
The bank calculates the wings fly’s quick ratio:
As you can examine through MyAccountingLab, Wings fly’s quick ratio is 1.46. This indicates that wings fly can meet its all current liabilities with quick assets and after paying current liabilities they still have few quick assets left over.
Now let’s consider the same situation with MyAccountingLab and let’s assume Wings fly did not give the bank with a whole balance sheet. Instead, Wings fly’s balance sheet only covered these accounts:
Prepaid taxes: $80,000
Total Current Assets: $20,000
Current Liabilities: $150,000