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Databased Ratio Question and Answers

Databased Ratio is a method of analyzing financial data that is essential for businesses, investors, and analysts alike. This method involves comparing different financial metrics to gain insights into a company's financial health and performance. Ratios such as debt-to-equity ratio, current ratio, and return on investment (ROI) can provide valuable information about a company's liquidity, solvency, and profitability.

By analyzing these ratios, businesses can identify areas that need improvement and make informed decisions about investments, mergers, and acquisitions. Investors can use Databased Ratio to evaluate the financial health of companies they are considering investing in, while analysts can use it to provide recommendations to clients.

Students preparing for competitive exams, especially those interested in careers in finance, accounting, or business, should understand database ratio. Students must have a thorough understanding of the various ratios and their applications in order to handle challenging problems because the concept of ratio analysis is frequently assessed in competitive exams. Also, having a solid understanding of ratio analysis can aid students in their study of financial accounts and decision-making regarding investments.

An Example

Let's consider an example of a company's financial statement and calculate some common ratios using Databased Ratio.

Company XYZ Financial Statement

Current assets $50,000
Current liabilities $20,000
Long-term liabilities $30,000
Equity $100,000
Net income $20,000

Now, let's calculate some ratios using Databased Ratio:

  • Current Ratio: Current assets / Current liabilities = $50,000 / $20,000 = 2.5
  • Debt-to-Equity Ratio: Total liabilities / Equity = ($20,000 + $30,000) / $100,000 = 0.5
  • Return on Equity (ROE): Net income / Equity = $20,000 / $100,000 = 0.2 or 20%
  • Gross Profit Margin: (Revenue - Cost of goods sold) / Revenue = (Revenue - $30,000) / Revenue
  • Quick Ratio: (Current assets - Inventory) / Current liabilities = ($50,000 - $10,000) / $20,000 = 2

In this example,

1. We have calculated some common ratios using Databased Ratio. These ratios can provide insights into the financial health and performance of the company.

2. For instance, a high current ratio indicates that the company has enough assets to cover its liabilities, while a low debt-to-equity ratio shows that the company is less reliant on debt financing.

3. The ROE shows the percentage return the company generated for its shareholders, while the Gross Profit Margin shows how much profit the company made on its revenue.

4. Finally, the Quick Ratio indicates whether the company has enough liquid assets to cover its short-term.

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