# Love Sosa Essay

Words: 708
Pages: 3

Current Ratio:
It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities.
Current Ratio = Current Assets / Current Liabilities

Acid-Test Ratio:
A stringent indicator that determines whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets.

Receivables Turnover Ratio:
An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

Inventory Turnover Ratio:
Stock turn over ratio and inventory turn over ratio are the same. This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times. Stock turn over ratio/Inventory turn over ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. This ratio indicates whether investment in stock is within proper limit or not.
The ratio is calculated by dividing the cost of goods sold by the amount of average stock at cost. Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost |

'Profit Margin':
A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.

Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 20\% profit margin, for example, means the company has a net income of \$0.20 for each dollar of sales.

Asset Turnover:
The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in dollars by assets in dollars.

'Return On Assets - ROA':
An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment".

'Return On Equity - ROE':
The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by…