Question

Which ratio(s) do you think is most important for a corporation and why?

Please need a unique answer with proper finance terminology. Thank yoU!

Answer 1

Ratios which are most important for a corporation are as follows-

A. Debt equity ratio- Debt equity ratio will be reflecting the total debt which has been held by the company in relation to the equity capital of the company and it will be reflecting the overall solvency problem which can associate with the company record debt capital will be leading to fixed repayment in the form of interest and higher debt equity ratio is always a bad position.

B. Current ratios and quick ratio- these ratios will be reflecting the liquidity position of the company and current and quick ratio will be reflecting the ability of the company to generate current asset in the short period of time in order to discharge the debt repayment so that company will be having liquidity in its hands

C. Profitability ratios- These ratios will be including gross profit ratio and net profit ratio and it will be reflecting the ability of the company to generate profit on the operational front and maximize the profits, so these will be reflecting the ability of the company, to generate higher profits and higher the profitability ratio better it is for the company.

D. Total assets to turnover ratio is another ratio which should also be looked into properly because it will be reflecting the ability of the company in effectiveness of use of its assets in order to generate higher amount of sales so the company will always be trying to generate higher amount of sales from existing assets.

E. Higher profit margin ratio- It is also preferred because it will reflect the ability of the company to generate the profit on the sales volume.