Accounting
CURRENT RATIO The most common ratio using current-asset and
current-liability
data is the current ratio, which is current assets divided by current
liabilities.
Recall the makeup of current assets and current liabilities. Inventory is
converted
to receivables through sales, the receivables are collected in cash, and the
cash is used to buy inventory and pay current liabilities. A company’s
current assets and current liabilities represent the core of its day-to-day
operations. The current ratio …
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…ratio measures the percentage of
a stock’s market value that is returned annually as dividends, an important
concern of stock holders. Preferred stockholders, who invest primarily to
receive dividends, pay special attention to this ratio.
BOOK VALUE PER SHARE OF COMMON STOCK. Book value per share of common stock
is simply common stockholders’ equity divided by the number of shares of
common stock outstanding. Common shareholders’ equity equals total
stockholders’ equity less preferred equity.
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