Join Jim Stice for an in-depth discussion in this video Current ratio, part of Running a Profitable Business: Understanding Financial Ratios.
- Step one in a financial analysis…is computing return on equity…and then the DuPont framework analysis…to look at the profitability,…efficiency, and leverage components.…We're now going to hone in on the leverage component…of return on equity with some specific ratios.…First we'll look at current ratio,…which is one of the top five ratios of all time.…Then the debt ratio, debt-to-equity ratio,…and then the times interest earned ratio.…Let's start with current ratio.…Current ratio is a measure of liquidity.…
Liquidity reflects the ability of a company…to pay its obligations in the short term.…Short term we typically define as less than one year.…Current ratio is computed as current assets…divided by current liabilities.…And let me remind you what a current asset is…and what a current liability is.…A current asset is an asset expected to be used…or turned into cash within one year.…So for example, accounts receivable.…That's a current asset because we expect those accounts…to be collected in cash within one year.…
Jim Stice
Earl Kay Stice
Released
2/2/2015Lynda.com is a PMI Registered Education Provider. This course qualifies for professional development units (PDUs). To view the activity and PDU details for this course, click here.
- What are financial statements?
- Understanding the DuPont framework
- Working with common-size financial statements
- Reviewing profitability, efficiency, and leverage ratios
- Analyzing potential-pitfall ratio
Skill Level Appropriate for all
Duration
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Introduction
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Welcome1m 40s
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1. What Is Financial-Ratio Analysis?
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2. A Review of the Financial Statements
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The balance sheet7m 25s
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The income statement3m 44s
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The statement of cash flows4m 32s
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3. The DuPont Framework
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The DuPont Company1m 35s
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Return on equity3m 34s
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DuPont framework3m 50s
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4. Common-Size Financial Statements
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Common-size overview7m 3s
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5. Profitability Ratios
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Price-earnings ratio4m 36s
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6. Efficiency Ratios
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Average collection period4m 27s
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7. Leverage Ratios
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Current ratio3m 40s
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Leverage ratios10m 58s
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8. Potential Pitfalls to Ratio Analysis
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New York Yankees1m 56s
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Conclusion
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Video: Current ratio