What you’ll learn to do: calculate basic financial ratios, such as the quick ratio and acid-test ratio, to measure the profitability and health of a business

Financial ratios allow consumers of financial information to compare how companies are doing relative to their industry or even how they are faring from one period (month, quarter, year) to another.  These ratios allow us to look at profitability, use of assets, inventories, and other assets, liabilities, and costs associated with the finances of the business. For instance, how quickly people pay their bills, how long it takes the company to recover its costs for new equipment, how much cash the company has relative to its debt, and its return (profit) on every dollar the company invests—these are all things that can be learned through financial ratios. Financial ratios also allow a company to compare itself to other firms in the same industry. Are the other dog biscuit companies doing about the same as ours? For our purposes you will be working with just a small subsection of these ratios: liquidity and profitability and leave the rest for a time when you complete courses in Finance and Accounting.

LEARNING ACTIVITIES

The learning activities for this section include:

• Video: Financial Ratios and Financial Ratio Analysis Explained
• Reading: Financial Ratio Analysis
• Self Check: Financial Ratios

Take time to review and reflect on each of these activities in order to improve your performance on the assessment for this section.