Ratio Analysis: Understanding Networking Capital Ratio and Analysis of 5 Liquidity Ratios

The video tutorial covers the networking capital ratio, explaining its significance as a measure of cash flow and liquidity. It compares the networking capital of two companies, highlighting the importance of having a positive ratio. The session also discusses the limitations of relying solely on this ratio for assessing financial health. A combined analysis of five liquidity ratios is presented, showing how they collectively provide a better understanding of a company's liquidity status. The session concludes with a summary and a preview of the next topic, leverage ratios.

What does the networking capital ratio primarily measure?

• The market share of a company

• A company's long-term financial stability

• A company's ability to meet short-term obligations

• The profitability of a company

In the example provided, what is the networking capital for Company A?

• 14,60,000

• 12,78,500

• 2,60,000

• 17,20,000

Why might some investors exclude short-term borrowings from current liabilities when calculating networking capital?

• To increase the company's profitability

• To focus on operational liquidity

• To reduce tax liabilities

• To improve the company's credit rating

What does a negative networking capital indicate about a company's operational situation?

• The company is highly profitable

• The company may default on obligations

• The company has a strong market position

• The company is expanding rapidly

Which company has a higher current ratio, and what is its value?

• Company A with 2.91

• Company B with 1.18

• Company B with 2.91

• Company A with 1.18

What is the significance of a quick ratio greater than one?

• The company has more liabilities than assets

• The company has enough liquid assets to meet obligations

• The company is not profitable

• The company has a high inventory level

What does the defensive interval ratio indicate?

• The company's long-term growth potential

• The company's profitability

• The number of days a company can operate without non-current assets

• The company's market share