Holooly Plus Logo
Holooly Plus Logo

Question 9.S-CQ.3: Is there an ideal value for each ratio? If not, how are rati...

Is there an ideal value for each ratio? If not, how are ratios used?

The blue check mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.

Very few ratios have an ideal value with the possible exception of the 1 : 1 quick ratio. Their use lies in comparison with previous years’ ratios, with target ratios, or with competitors’ ratios.

Related Answered Questions

Question: 9.S-CQ.2

Complete the following equation: Return on capital = profit margin × ……………………? ...

Verified Answer:

Return on capital = Profit margin × Rate of turnov...
Question: 9.7

If a company’s liquid assets are £380,000 and current liabilities are £300,000 then the resulting ratio of more than 1:1 seems satisfactory at that point in time. The exact quick ratio is calculated from: ...

Verified Answer:

\text { Quick ratio }=\frac{\text { Liquid ...
Question: 9.3

A company has capital employed of £2 million and annual sales of £4 million.Capital employed has been turned over twice during the year. Another way of expressing this would be to say each £1 of capital has generated £2 of sales. ...

Verified Answer:

\text { Turnover of capital }=\frac{\text {...
Question: 9.1

Using sample figures when profit is £1 million, sales are £10 million, and capital is £5 million, then: ...

Verified Answer:

Question: 9.7

Using the same figures as in the quick ratio but now including stocks of £350,000, the current assets become £730,000 and the current liabilities remain at £300,000. The current ratio of 2.4:1 indicates this company has more than sufficient short-term assets to meet its short-term debts. ...

Verified Answer:

\text { Current ratio }=\frac{\text { Curre...
Question: 9.9

When annual interest is £70,000 and profit before interest is £100,000, then income cover of only 1.4 times means that most of the profit is going in interest payments. Any fall in profits or rise in interest rates will make this company vulnerable, apart from the fact that there is very little ...

Verified Answer:

\text { Income cover }=\frac{\text { Profit...
Question: 9.S-CQ.7

What is the purpose of a Z score? ...

Verified Answer:

A Z score is a combination of ratios used to help ...
Question: 9.S-CQ.6

What ratios are used to measure performance in public sector services? ...

Verified Answer:

Ratios that measure economy, efficiency and effect...
Question: 9.S-CQ.5

Which company is more vulnerable? Company A, which pays annual interest of £50,000 and makes a profit of £100,000, or Company B, which pays £150,000 interest and makes £500,000 profit? ...

Verified Answer:

Interest cover for company A is 2 times and for co...
Question: 9.S-CQ.4

Which ratio would you use to examine whether a company was short of cash if you knew it could not borrow any more money? ...

Verified Answer:

The quick ratio of liquid assets/current liabiliti...