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Acc 291 Week 4 Reflection

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Through week four of accounting 291, the team got to view a lot of information about the different types of common ratios that companies use to analyze financial information. From the readings this week and discussions the team came to the conclusion that ratios play an important role in accounting. Week four went in-depth about the different types of common ratios that companies use to analyze its financial information. The team spoke about what common ratios are more important, and examples of how companies use ratios in the decision-making process.
Some common ratios used to analyze financial information profitability ratios, efficiency ratios, liquidity ratios, and solvency ratios. Profitability ratios are the company's gross, operating, and net profit margins. The gross profit margin measures profitability after considering the cost of goods sold, whereas the operating profit margin measures profitability as a result of earnings before interest and tax expense. The net profit takes all expenses into consideration and is often viewed as the bottom line. Efficiency ratios measure how effective management is managing the turnover rates and returns on assets. Sales to receivables and inventory turnover is also in the efficiency ratios. When a company measures inventory turnover and sales to receivables a higher number proves better efficiency. Measuring return on assets involves comparing net income to total assets. The third type of ratio is liquidity which evaluates the company's ability to settle current debts. Current ratios and quick ratios are the most common of liquidity ratios. Company's locate the current ratio by dividing the current assets by current liabilities. The overall effectiveness of a quick ratio is it determines how much a company can pay immediately. The final type of ratio is solvency also known as leverage ratios. This type of ratio judges

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