Financial Health Ratios
Discuss what ratios should be used to assess the financial health of the potential acquisition?
Assessing the financial health of a potential acquisition involves evaluating various financial ratios that provide insights into different aspects of the target company’s performance, profitability, liquidity, solvency, and efficiency. Here are key ratios commonly used for this purpose:
- Liquidity Ratios:
- Current Ratio: Current Assets / Current Liabilities
- Quick Ratio (Acid-Test Ratio): (Current Assets – Inventory) / Current Liabilities
These ratios assess the company’s ability to meet short-term financial obligations using its current assets.
- Profitability Ratios:
- Gross Profit Margin: (Gross Profit / Revenue) * 100
- Operating Profit Margin: (Operating Profit / Revenue) * 100
- Net Profit Margin: (Net Profit / Revenue) * 100
These ratios measure the company’s profitability relative to its revenue and costs…
Assessing the financial health of a potential acquisition involves evaluating various financial ratios that provide insights into different aspects of the target company’s performance, profitability, liquidity, solvency, and efficiency. Here are key ratios commonly used for this purpose:
- Liquidity Ratios:
- Current Ratio: Current Assets / Current Liabilities
- Quick Ratio (Acid-Test Ratio): (Current Assets – Inventory) / Current Liabilities
These ratios assess the company’s ability to meet short-term financial obligations using its current assets.
- Profitability Ratios:
- Gross Profit Margin: (Gross Profit / Revenue) * 100
- Operating Profit Margin: (Operating Profit / Revenue) * 100
- Net Profit Margin: (Net Profit / Revenue) * 100
These ratios measure the company’s profitability relative to its revenue and costs…
Assessing the financial health of a potential acquisition involves evaluating various financial ratios that provide insights into different aspects of the target company’s performance, profitability, liquidity, solvency, and efficiency. Here are key ratios commonly used for this purpose:
- Liquidity Ratios:
- Current Ratio: Current Assets / Current Liabilities
- Quick Ratio (Acid-Test Ratio): (Current Assets – Inventory) / Current Liabilities
These ratios assess the company’s ability to meet short-term financial obligations using its current assets.
- Profitability Ratios:
- Gross Profit Margin: (Gross Profit / Revenue) * 100
- Operating Profit Margin: (Operating Profit / Revenue) * 100
- Net Profit Margin: (Net Profit / Revenue) * 100
These ratios measure the company’s profitability relative to its revenue and costs…
