Answer to Question #174888 in Accounting for Surbhi Garg

Question

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.

Answer 1

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