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Acc 561 Wk 2 Financial Statement Analysis

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Acc 561 Wk 2 Financial Statement Analysis
ACC/561
Businesses, creditors, analysts, and investors use companies’ financial ratios to
assess the financial health of companies. Financial ratios are standard sets of values
calculated from financial statements (Horngren, Sundem, Stratton, Burgstahler, &
Schatzberg, 2008). Different standard financial ratios measure different financial
attributes of a business. This document presents the Quick, Current, DuPont, Profit
Margin, Asset Utilization, and Financial Leverage ratios. The standard ratios can
compare the financial well-being of different companies in a uniform manner for
comparison purposes. Three companies were selected for comparison of financial
ratios in different industries. One company, ING Group (ING), has headquarters
located outside of the United States (U.S.). The two U.S. companies selected are
Microsoft and General Electric (GE).
Quick Ratio
The quick ratio assesses a company’s ability to apply its liquid assets against its
outstanding current liabilities. Expected quick ratios are 1.0 or higher. Lower quick
ratios may indicate liquidity problems. Service businesses usually carry lower quick
ratios than manufacturing and retail businesses. Note that ING is a service business
and does not have inventory.
Current Ratio
The current ratio measures a company’s liquidity. The current ratio is a liquidity ratio
that represents an organization’s capability to repay short-term loans or debt
(University of Phoenix, 2008). Generally, current ratios of 1.5 are common in most

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