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Stocks 304: Interpreting the Numbers

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1.
Liquidity ratios attempt to measure _______.
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How likely a company will be able to meet its near-term obligations.
2.
A company's leverage refers to how much _______ it has on its balance sheet.
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Debt. Leverage is all about debt.
3.
Efficiency ratios measure _______.
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How effectively a company manages its assets and liabilities. Inventory turnover, for example, measures how well a company manages its inventory.
4.
The amount of each dollar of sales that a company keeps in the form of gross profit is measured by _______.
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Gross margin. It is calculated by dividing gross profit by sales.
5.
What is the best way to use financial ratios?
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Both of the above. Looked at by themselves, many financial ratios don't tell much. The best way to use them is to compare them with similar companies and to compare them for the same company over time to identify trends.