*Register to read the introduction…*Current assets divided by current liabilities will yield the current ratio. In an example from the financial statement of the University of Chicago Medical Center (UOCMC), of June 30, 2012 and 2011 the total current assets of $356,442 divided by the total liabilities of $190,257 in 2012 yielded a current ratio of 1.87. A current ratio of 1.5 is considered good in most industries. As the number reaches or goes under one, this identifies the company has a negative working capital (Kennon, J. 2013). The total debt to total assets ratio identifies the company’s financial risk by showing how much of the assets of a company is financed by debt. Usually the lower this ratio figure is the better off the company. The formula can be displayed by showing the total liabilities divided by the total assets. Again using the figure from the UOCMC’s financial statement in 2012 the liabilities of $1,324,494 divided by the assets of $2,453,848 produced, a total debts to total assets ratio of

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Working capital ratio allows a company to manage day to day operations. This is also known as liquid assets. So by dividing the current assets by the current liabilities, this will give the working capital ratio. The 2012 current assets of the UOCMC were $74,348 and the current liabilities were $117,678. By dividing the current assets by the current liabilities, the working capital ratio of 0.631 was produced. A stable working capital ratio is between 1.2 and 2.0. The working capital ratio of less than one identifies a business that is not able to handle current liabilities and might be in trouble.

The cash ratio indicates a company’s liquidity by measuring the amount of the company’s cash, cash equivalents and invested funds over their liabilities (Loth, nd.). To continue with the figures from the UOCMC in 2012, their cash and cash equivalents of $74,348 plus invested funds of $27,033 divided by their current liabilities of $190,257 equaled a cash ratio of 0.53.

Financial Statement Category –

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The operating expense ratio measures the financial efficiency of a company in how it is able to generate income (Kantrovich, 2012). The formula for this ratio is the total operating expense not including interest minus depreciation divided by gross income. In 2012 the total operating expense of $1,170,723 minus the depreciation of $67,522 divided by gross income $1,289,885 equaled 0.85. The depreciation expense ratio indicates the amount on revenue required to sustain the capital that is used by the company. A lower the depreciation-expense ratio displays a better condition of the company. This ratio is calculated by dividing the depreciation of $67,522 by the gross income of $1,289,885 to obtain the depreciation-expense ratio of