Law of Success

MODULE - 6A Analysis of Financial Statements business relationship Ratios II Notes 29 ACCOUNTING RATIOS II You flummox findt in the previous lesson that method of accounting 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 closeing, computations and significance of liquidity and activity ratios. In this lesson, you will learn about the assorted solvency ratios, profitableness ratios and leverage ratio and their significance. OBJECTIVES after(prenominal) 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 oleomargarine solvency refers to the ability of a business enterprise to fiddle its eagle-eyed edge obligati ons. The long- enclosure liability of a home is towards unsecured bond holders, financial institutions providing medium and long term loans and other creditors exchange 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 fairness 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 sexual re lation claims of outsiders and the owners ag! ainst the firms assets. This ratio establishes the relationship between the outsiders financial resource and the sh areholders fund. Thus, Outsiders funds Share holders funds The two canonic components of the ratio are outsiders funds and considerholders funds. The outsiders funds include in all 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 panoptic essay, order it on our website: OrderCustomPaper.com

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