Financial Risk

The financial ratio categories are Liquidity, Activity, Profitability, and Coverage (Kieso, Weygant, & Warfield, 2008). These ratios are comparisons of different financial accounts that show financial performance measures in different areas. Fluctuations of these ratios can be red flags. These fluctuations can show increases or decreases in performances. Increases could indicate growth, but decreases could show negative signs in performance levels that need to be analyzed and addressed. Liquidity, or solvency, ratios measure the short run ability to pay maturing obligations and include the current ratio, current cash debt coverage ratio, and the quick ratio. The current ratio measures current assets to current liabilities. The current cash debt coverage ratio measures net cash from operating activities to average current liabilities. The quick ratio measures cash, marketable securities, and net receivables to current liabilities.

The Activity, turnover or efficiency, ratios measure the effectiveness of using assets and include receivable...
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