Answer in Accounting for Surbhi Garg #174888
The following information is given with respect to the ratio’s of two companies:
Aman Ltd Roger Ltd
Current ratio 2:01 1.60:1
Quick Ratio 1.35:1 1:01 Return on invest 15% 13%
Debt Equity Ratio 2.5:1 1:01
1. Define the concepts of Current and Quick ratio’s and also, reflect on your understanding towards the financial performance of the companies by looking to the above information.
2.Define the terms- Return on Investment and Debt equity ratio and also, reflect on your understanding towards the financial performance of the companies.
1) Current Ratio and Quick Ratio are liquidity ratios
Current Ratio = Current Asset / Current Liability
Standerd Current Ratio = 2
Quick Ratio = Quick Asset / Current Liability
Standerd Quick Ratio = 1
In there Aman Ltd is Better than Roger Ltd becouse both Current and Quick Ratios are higher than Roger Ltd.
2) Return on Investment = Net Income / Investment
In there Aman Ltd is Better than Roger Ltd becouse ROI is greater than Roger Ltd
Debt to Equity Ratio = Total Debt / Equity
A Lower Debt to Equity Ratio Means Risk is also Lower Becouse There using lower debt compared to equity thus Roger Lted has less risk than Aman Ltd