EXAM preparation - Financial management - Ratios

10 important questions on EXAM preparation - Financial management - Ratios

What does liquidity measure?

It measures a business ability to mee short term obligations (what you owe or must do later)

Current ratio ( Shows if the business can cover short-term debts with short-term asset)

Current ratio= current assets / current liabilities

What does solvency measure?

Measures a business's long-term ability to meet debt obligations.
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Debt- to - equity ratio:

how much of the hotel is financed by debt versus the owners’ own money.

debt-to-equity ratio= total liabilities / total owners equity

Debt service coverage ratio (DSCR):

Of een bedrijf genoeg cashflow heeft om zijn jaarlijkse schuldverplichtingen te betalen.
>  how many times can your cash cover your debts?

DSCR= (net operating income -  cash transfers to replacement reserves)- debt service payment

What does profitability measure?

Profitability ratio's reflect the result all of areas of management responsibility
Measures management's ability to generate sales and control expenses.

ROE ( return on investment)

ROE compares the company’s profit to the money the owner invested

= Net Income / Average Owners' Equity.

What does a activity ratio meassures?

Measures how efficiently a business uses its assets and resources.

· Property & Equipment Turnover (Fixed Assets)

Shows how effectively property and equipment are used to generate revenue.
Total Revenue / Average Property & Equipment

Asset Turnover Ratio

Examines the use of all assets in relation to total revenue generated.
Total Revenue / Average Total Assets 

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