Financial Ratios
Chapters in this video
What this video covers
- How to calculate the current ratio (current assets divided by current liabilities) and why a result below 1.0 signals a liquidity crisis
- How the quick ratio (acid-test ratio) removes inventory from current assets to give a stricter, more conservative liquidity reading
- Why the quick ratio is always equal to or less than the current ratio, and when the two ratios become mathematically identical
- How to calculate the debt-to-equity ratio (total liabilities divided by shareholders' equity) and what a ratio above 1.0 means for financial risk
- Why higher is better for liquidity ratios but higher is more dangerous for leverage ratios
- How the exam traps test-takers by pairing sky-high liquidity with terrifying leverage in the same company profile
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