The document discusses various financial ratios that can be used to analyze a business's financial stability and position. It defines current assets and current liabilities, and explains three key ratios: the liabilities to equity ratio, which shows the proportion of funds that are liabilities; the owner's equity to equity ratio, which shows the proportion of funds invested by the owner; and the current ratio, which shows how much current assets the business has relative to its current liabilities. The document instructs the reader to calculate and summarize these ratios to analyze a business's profitability and financial stability.

1. Ratios continued no 9
Financial Stability
This is the ability for the business
to pay its debts and have an
adequate cash flow

2. Current
What is a current asset and a current
liability???
Lets come up with our own examples
now?

3. Liabilities to Equity (Assets) Ratio
– Total Liability / Total Assets x 100 as a %
This shows the proportion of funds that are liabilities
A HIGH % is not good and shows few funds available
Owner’s equity to Equity Ratio
- Owner’s equity / Total Assets X 100 as a %
Shows the proportion of funds invested by the owner
There is no legal obligation to return money owed to the
owner
Current Ratio
– Current Assets / Current Liabilities
Expressed as a decimal
Do not times by 100
This ratio shows how much current assets the
business has in relation to their current liabilities

4. Question
Summarise at the bottom of your last ratio summary
exercise the ratios done today.
By the end of the lesson you should have one page with
ratios for profitability and financial stability relating to
– Gross Profit
– Net Profit
– Return on owners investment
– Return on total Assets
– Liabilities to Equity Ratio
– Current Assets to Current Liabilities
– Now use these to determine the ratios for Q3 a) and b)
page 387.