Solvency ratio indicates Essay Example for Free

Solvency ratio indicates Essay The solvency The solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-term and long-term liabilities. The lower a companys solvency ratio, the greater the probability that it will default on its debt obligations. Current ratio The ratio is mainly used to give an idea of the companys ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt as there are many ways to access financing but it is definitely not a good sign. Current ratios for Sports UK For year 2012 For year 2011 Acid test ratio A stringent indicator that determines whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets. Acid test ratio for Sports UK For year 2012 For year 2011 Performance ratio Calculates a measure of a specific aspect of performance, which might involve things which you can attach a number to, or an indicator that something did or did not happen in the requited way. Ratios are very good way to measure them using only a financial record. This record bellows shows performance of sports UK. 2011 Stock turn over= 72215 = 3.05 times 23611 2012 Stock turn over= 23611 x 365 = 119.3 days 72215 2011 debt collection period = 9024 x 365 = 962 days 34212 2012 debt collection period = 9098 x 365 = 904 days 36696 2012 asset turnover= 153487 = 0.64 237028 2011 asset turnover= 159921 = 0.73 219013 Profitability ratios Measures that indicate how well a firm is performing in terms of its ability to generate profit. Those ratios measure financial metrics that are used to assess a businesss ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitors ratio or the same ratio from a previous period is indicative that the company is doing well. Profitability ratios of Sports UK for 2011 Gross profit margin =81272 x 100 =52.95 153487 Net profit percentage = 6741 x 100 = 43.9 153487 ROC E= 10753 x 100 = 21.9 49097 Profitability ratios of Sports UK for 2012 Gross profit margin =83199 x 100 =52.02 159921 Net profit percentage = 6742 x 100 = 39.0 159921 ROC E= 10310 x 100 = 20.9 49227