Explain functional classification of ratios, Managerial Accounting

Assignment Help:

Explain Functional classification

a)  Liquidity ratio: these are the ratio which measures the short term solvency or financial position of a firm. These ratios are calculation to comment upon the short term paying capacity of a concem or the firm's ability to meet its current obligations. The various liquidity ratios are current ratio liquid ratio and absolute liquid ratio. Father to see the efficiency with which the liquid resources have been employed by a firm debtor s turnover and creditor's turnover ratios are calculated.

b) Long term solvency and leverage ratio: longer term solvency ratios convey a firm ability debt equity ratio interest coverage ratio and leverage ratio. Show the proportions of debt equity in financing of the firm. These ratios measure the contribution of financing by outsiders. The leverage ratios can further be classified as:

Financial leverage

Operating leverage

Composite leverage

c) Activity ratios: activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed. These ratio are also called turnover ratios because they indicate the speed with which assets are being turned over into sales e.g., debtor turnover ratio. The various activity or turnover ratios have been named in the chart classifying the ratios.

d) Profitability ratios: these ratios measure the result of business operation or overall performance and effectiveness of the firm e.g., gross profit ratio or return on capital employed. The various profitability ratio have been given in the chart exhibiting the classification of ratios according to test. Generally two types of profitability ratios calculated are

In relation to sales and

In relation to investments

 


Related Discussions:- Explain functional classification of ratios

Job costing, Manufacturing cost data for Sassafras Company, which uses a jo...

Manufacturing cost data for Sassafras Company, which uses a job order cost system, are presented below. Indicate the missing amount for each letter. Assume that in all cases manufa

Steady state condition, Steady state condition In many cases, the Marko...

Steady state condition In many cases, the Markov process will converge to a steady state or equilibrium. In general, as number of transitions `n' increase, the state values

Explain cost volume profit analysis, Cost volume profit analysis Meani...

Cost volume profit analysis Meaning and definition Cost volume profit analysis is a technique for studying the relationship between cost volume and profits . profits of an

What is replacement cost, Replacement cost It is the cost of replacing ...

Replacement cost It is the cost of replacing a material or asset, by purchase from the current market. If an X material was originally purchased @ Rs. 250 per Kg. And know i

Support each classification with appropriate rationale., For this assignmen...

For this assignment, please complete and submit Task 1 and Task 2 as described below. Task 1: Classifying Cash Flows The following are transactions, events, and changes in balances

What is competition oriented pricing policy, Competition oriented pricing p...

Competition oriented pricing policy Most companies fix the price of their products after a careful consideration of the competitor's price structure. Deliberate policy may be f

Journal Entries and T-account, h. Production orders that had cost 450,000 t...

h. Production orders that had cost 450,000 to complete according to their job cost sheets were shipped to customers during the month. These goods were sold on account at 50% above

Time series analysis, what is semi average trend analysis using regression ...

what is semi average trend analysis using regression analysis method?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd