Ratio Analysis and Discussion Free Essay, Term Paper and Book Report
There are five major categories of ratios. Liquidity ratios determine if required payments can be made. Asset management ratios determine how efficiently a firm is using its resources. Debt management ratios determine if there is the right mix of debt and equity and if the equity can repay the debt. Profitability ratios look at whether sales exceed costs, and how liquidity, asset management and debt affect the operating results. Market value ratios indicate whether investors like what they see in the company’s results and future prospects. Determining certain financial ratios is helpful to both potential investors and a company’s managers when attempting to ascertain not only the firm’s success but also its efficiency and effectiveness. One such measure is asset turnover, an asset management ratio, which is calculated by dividing sales or revenue in dollars by assets in dollars (Albrecht, Stice, Stice, Swain, 2005). In 2006, Verizon’s asset turnover was 0.5 and Sprint’s was 0.4. This was a slight improvement over 2005 where Verizon was 0.4 and Sprint was 0.3.
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Word Count: 1563
Page Count: 6.2 (250 words a page / double spaced)
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