Working Capital To Debt Ratio

Description The working capital to debt ratio is used to see if a company could pay off its debt by liquidating its working capital. This measure is used only in cases where debt must be paid off at once, since the elimination of all working capital makes it impossible to run a business and will likely lead to its dissolution. Formula Add up cash, accounts receivable, and inventory, and subtract all accounts payable from the sum. Then divide total debt into the result. A variation is to use...

Quality Of Earnings Ratio

Description It can be extremely difficult for an outsider, such as a stock analyst, bank officer, or investor, to determine if the earnings reported by a company are based upon a foundation of solid operational earnings, or if the company is taking advantage of a broad array of accounting tricks that are allowable under generally accepted accounting principles GAAP to artificially bolster its earnings. A simple ratio for determining the quality of reported earnings is the quality of earnings...

Accumulated Depreciation To Fixed Assets Ratio

Description Comparing the amount of accumulated depreciation to the gross amount of fixed assets recorded on a company's balance sheet can indicate the extent to which a company has continued to replace its existing assets with new ones on an ongoing basis. For example, if the proportion of accumulated depreciation to fixed assets is quite high, it is evidence that not too many assets have been added by a company in recent years, which may in turn lead one to suspect that there is little cash...

Interest Expense To Debt Ratio

Interest expense Total debt Interest to debt ratio Short-term debt Long-term debt Example An investor suspects that the Paulson Printing Company, maker of fine engraved letterhead, is beginning to have difficulty obtaining debt to finance an acquisition binge. The investor obtains the information in Table 2.12 for the last three years of operations. The ratio reveals that, although the total amount of interest paid in the most recent year has declined, this is based on a smaller amount of...

Fringe Benefits To Wages And Salaries Expense

Description Apparently small changes in a company's benefit policies can have a profound impact on the total benefits expense for a company. The best way to see the total impact of these changes is to calculate a ratio of fringe benefit costs to total wages and salaries. This is also a useful measure when comparing the overall fringe benefit costs of two companies that are considering merging, so that the surviving entity can calculate the potential savings to be made by shifting the other...

Repairs And Maintenance Expense To Fixed Assets Ratio

Description This ratio is useful for estimating the age of the collective group of fixed assets listed in the financial statements. If the ratio follows an increasing trend line, then the company is probably in need of some asset replacements. An increasing trend line may also be indicative of high asset-usage levels, which can prematurely require advanced levels of repair work. Of particular interest is an increasing ratio that suddenly drops with no corresponding increase in the amount of...