After learning about key financial ratio from the previous article (Key Financial Ratios To Evaluate Companies
), this article will show an example based on the financial statements of CG Oil Company in 2014.
Figure 1 and Figure 2 are a company balance sheet and profit and loss account, respectively.
Figure 1 – CG Oil Company Balance Sheet Continue reading
In order to evaluate a company’s financial health, there are some important ratios which will help investors get a clearer picture of companies.
Current Ratio – It is the current assets divided by the current liabilities in a company. This measures the ability of a company to pay current its liabilities over the next 12 months. Quick ratio should be at least more than 1. If its value is less than 1, it means that a company has insufficient cash to meet short term debts.
Current Ratio = Current Assets ÷ Current Liabilities Continue reading