Financial Ratio

Measures the ability of a business to meet its liabilities.

                                      Current assets

Current Ratios =    -------------------------------------------

                                      Current Liabilites

It is a ratio to calculate the amount of current assets to current liabilities. It shows how well a business will be able to meet its current debts if they were all called in at once without selling off any of their non-current assets.

A common figure would be 1.6:1 Meaning that when the debts are called in the business will be able to pay them off and have money left over to maintain flexibility.

This ratio measures the short term liquidity of a business. It provides a better indicator than the current ratio on liquidity as the only assets considered are liquid.

                                              Current Assets

Acid test ratio = ---------------------------------------------------------------------

                                             Current Liabilities

A business aims for an acid test ratio of 0.7:1. A business should not operate with a high Acid Test Ratio, as holding assets in the form of cash is not profitable.

                     non-current liabilities x 100

Gearing =   ------------------------------------------------------

                     total equity + non-current liabilities

Measures the long term liquidity of the business and the amount of a businesses funds raised through non-current liabilities.A highly geared business has a percentage of over 50%, and a low geared business has a percentage lower than 50%.

Measures a business' sales in relation to the assets used to generate these sales.

                                            Revenue (turnover)

Asset turnover = ---------------------------------------------------------------------

                                                  Net Assets

It is the efficiency with which a business uses it assets