Question

Explain the importance of Debt equity ratio working capital ratio

Answer 1

Significance of Working Capital Turnover Ratio

Working Capital Turnover Ratio depicts the relationship between turnover (i.e. net sales) and working capital of a company. This ratio signifies:

• How efficiently the working capital of a company is used in generating sales.
• Higher the working capital ratio is, higher is the efficiency with which the company is utilising its working capital.
• Lower the working capital ratio is, lower is the efficiency with which the company is utilising its working capital.

Significance of Debt-Equity Ratio

This ratio reveals the relationship between debt (i.e. borrowed capital) and equity (i.e. owner's capital). This ratio signifies:

• The solvency position of a company.
• Depicts the long-term financial position of a company.