WHATTHECHANGEINRATIOSMEAN
If a firmrealises book debts in cash—No change in current assets, quick ratio, current ratio or net working capital.
If a firmrealises old assets or non current assets in cash or sell fixed assets in cash: current assets, quick ratio, current
ratio or networkingcapitalwillall improve
If a firmissues bonus shares—There is no change in any ratios
If a firmissues rights shares—Current ratio, quick ratio, net working capital, debt equity ratio, net worth will improve
If a firm revalues its fixed assets and creates revaluation reserve: Net worth and tangible networth increase. Debt
equity ratio declines / improves. There is no effect on current assets or quick assets or current ratio and quick ratio.
If increase in long term sources is more (say 125%) than increase in long term uses during a year liquid
asset would increase, liquidity would improve.
If increase in long term is uses more (say 125%) than increase in long term sources during a year — liquid
asset would decrease, liquidity would decline.
Lower and higher break even point : A firm with lower break even point has better chances for earning profits. A firm
with higher break even earns lower profits.
If break-even point of a firmgoes up—It is an indication of dedine in profits
If break-even point of a firmgoes down—It is an indication of increase in profits
If debtor-turnover ratio increase—It shows efficiency in recovery
If debtor-velocity ratio decrease—It shows firmis allowing credit to buyer of its products for a lesser period
If stock-turnover ratio increase—It is better use of stocks
If current ratio increases and quick ratio remain constant — It shows higher %age of stocks in or lower %age of
receivables in total current assets.
If current ratio is constant and quick ratio increases—It shows lower%age of stocks or higher%age in receivables in
total current assets.
If a firmrealises book debts in cash—No change in current assets, quick ratio, current ratio or net working capital.
If a firmrealises old assets or non current assets in cash or sell fixed assets in cash: current assets, quick ratio, current
ratio or networkingcapitalwillall improve
If a firmissues bonus shares—There is no change in any ratios
If a firmissues rights shares—Current ratio, quick ratio, net working capital, debt equity ratio, net worth will improve
If a firm revalues its fixed assets and creates revaluation reserve: Net worth and tangible networth increase. Debt
equity ratio declines / improves. There is no effect on current assets or quick assets or current ratio and quick ratio.
If increase in long term sources is more (say 125%) than increase in long term uses during a year liquid
asset would increase, liquidity would improve.
If increase in long term is uses more (say 125%) than increase in long term sources during a year — liquid
asset would decrease, liquidity would decline.
Lower and higher break even point : A firm with lower break even point has better chances for earning profits. A firm
with higher break even earns lower profits.
If break-even point of a firmgoes up—It is an indication of dedine in profits
If break-even point of a firmgoes down—It is an indication of increase in profits
If debtor-turnover ratio increase—It shows efficiency in recovery
If debtor-velocity ratio decrease—It shows firmis allowing credit to buyer of its products for a lesser period
If stock-turnover ratio increase—It is better use of stocks
If current ratio increases and quick ratio remain constant — It shows higher %age of stocks in or lower %age of
receivables in total current assets.
If current ratio is constant and quick ratio increases—It shows lower%age of stocks or higher%age in receivables in
total current assets.
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