Law of Success

MODULE - 6A Analysis of Financial Statements chronicle Ratios II Notes 29 ACCOUNTING RATIOS II You flummox assuret in the previous lesson that be ratios can be sort into five major groups namely liquidity ratios, action mechanism ratios, solvency ratios, gainfulness ratios and leverage ratio. You have already learnt the dream uping, computations and significance of liquidity and activity ratios. In this lesson, you will learn about the sundry(a) solvency ratios, profitableness ratios and leverage ratio and their significance. OBJECTIVES after studying this lesson you will be able to : explain various types of accounting ratios i.e. solvency, profitability and leverage ratios; calculate the various ratios on the basis of given entropy; describe the limitations of accounting ratios. 29.1 SOLVENCY RATIOS The margarine solvency refers to the ability of a business enterprise to happen its grand edge obligations. The long- end point liability of a home is towards debenture holders, financial institutions providing medium and long term loans and other creditors sell goods on credit. These ratios indicate firms ability to meet the fixed interest and its costs and quittance schedules associated with its long term borrowings. The following ratios serve the purpose of ascertain the solvency of the business firm.

Debt virtue ratio Proprietary ratio 42 ACCOUNTANCY Accounting Ratios II Debt-equity ratio It is also otherwise known as away to internal equity ratio. It is calculated to know the carnal knowledge claims of outsiders and the owners against the firms assets. This ratio establishes the rel! ationship between the outsiders pecuniary resource and the sh areholders fund. Thus, Outsiders funds Share holders funds The two elementary components of the ratio are outsiders funds and considerholders funds. The outsiders funds include completely debts/liabilities to outsiders i.e. debentures, long term loans from financial institutions, etc. Shareholders funds mean preference share capital,...If you want to get a lavish essay, order it on our website: OrderCustomPaper.com

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