| TABLE 21-1 Financial Ratio Analysis |
| Ratio | Value Less Than 1 | Value = 1 | Value More Than 1 |
| Current ratio = current assets/current liabilities | Debts greater than assets; potentially major problems | Debts and assets are equal | Assets greater than debts; current ratio of 2 is desirable |
| Acid-test ratio = quick current assets / current liabilities | Cash flow could be a problem | Business is in satisfactory condition | Business is in good financial condition |
| Operating ratio = (COGS+OPERATING EXPENSES)/NET SALES | Desirable | Marginal | Undesirable |
| Gross profit margin ratio = (Gross profit from sales)/net sales | 0.25 to 0.40 is industry average | Uncommon except for businesses with low turnover and high investment | Undesirable |
| Asset turnover ratio = net sales / average total assets | 0.40 to 1.0 is industry average | Uncommon | Uncommon |
| Total debt to total assets ratio = total liabilities / total assets | 0.05 to 0.75 is industry average | Debt ratio is too high | Debt ratio is dangerously high |
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FinancialRatios.xlsx
