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Question
Explain the importance of Debt equity ratio working capital ratio
Explain the importance of Debt equity ratio working capital ratio
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Solution
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.
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.
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