Financial Ratios

This blog post provides an overview of five financial ratios: capital gearing ratio, proprietary ratio, current ratio, liquid ratio, and stock to working capital ratio. The ratios are explained in detail, and their significance is discussed.

Capital Gearing Ratio

The capital gearing ratio is a measure of the extent to which a company’s capital is funded by debt. The higher the capital gearing ratio, the greater the risk that the company will default on its debt payments.

Proprietary Ratio

The proprietary ratio is a measure of the proportion of a company’s assets that are funded by equity. The higher the proprietary ratio, the less risky the company is.

Current Ratio

The current ratio is a measure of a company’s ability to meet its short-term liabilities. A current ratio of 2 or higher is considered to be healthy.

Liquid Ratio

The liquid ratio is a measure of a company’s ability to meet its short-term liabilities with its most liquid assets. A liquid ratio of 1 or higher is considered to be healthy.

Stock to Working Capital Ratio

The stock to working capital ratio is a measure of the proportion of a company’s working capital that is tied up in inventory. A high stock to working capital ratio can indicate that the company is carrying too much inventory, which can lead to cash flow problems.