Introduction to Business Essay Example | Topics and Well Written Essays - 250 words - 8

Introduction to Business - Essay Example The company will be in a worthy financial condition if the liquidity ratios are greater than one (Bragg, 2012). Debt ratios indicate proportions of a firm’s debt to its entire assets. This ratio shows how much the firm counts on debt in financing its assets. It gives users a rapid measure of the debt amounts in the balance sheets of the firm compared to the firm’s assets. Low debt ratios show conservative financing with borrowing opportunities in the future. Profitability ratios are used in measuring the ability of a firm in generating earnings that are relative to assets, equity and sales. These types of ratios are used in assessing the company’s ability in generating profits, cash flows and earnings relative to the invested money. Additionally, they show how efficiently the firm’s profitability is managed. Activity ratio shows how much a firm has invested in a specific asset, relative to the returns the assets are producing (Bragg, 2012). In conclusion, liquidity ratios are reflected to be the most vital ratios to the financial managers. The entitys ability in maintaining its short term debt paying abilities is essential for all financial statement users. Profitability ratios are important to the business accountants because they issue valuable information. They access the ability of a business in generating earnings as compared to the firm’s