Inventory and prepayments are excluded from the

current ratio when calculating the quick ratio.

The current ratio is one of the simplest ratios to

calculate.

A profit margin ratio of 15% is more favourable than

11%.

It is preferable for the Accounts Receivable

Turnover ratio to be a low number of times.

The debt ratio measures solvency and provides an

indication of the financial risk of an entity.

It is preferable for the Inventory Turnover ratio to

be a high number of times.

A decrease in the return on assets ratio indicates

an improvement in the efficiency of management to generate profit from assets.

If profits remain steady, but the owner contributes

additional capital during the year, ignoring other factors the return on equity

will decline.

An entity’s gross profit margin ratio provides

insight into the mark-up on products sold.

A drop in selling price that leads to inventory selling quicker may cause the average days in

inventory to change from 34 days to 28 days.