Respond to discussion post in a friendly manner: The three types of ratios I chose are profitability ratios, liquidity ratios, and debt performance ratios.

Profitability Ratio

Profitability is a standard measure of the overall performance of a company. There are four parts to the profitability ratio; total margin, return on assets, return on equity, and operating margin. The total margin is a measurement of the overall profitability of a company. Total margin is calculated by dividing net income by total revenues. Return on assets is another measure of financial performance. Return on assets is calculated by dividing net income by total assets. Return on equity is another measure of financial performance. It is calculated by dividing net income by total equity. Operating margin measures the level of profitability of the company. It is calculated by dividing operating income by operating revenues. A higher value is indicative of a better performing company and is reported as a percentage. The profitability ratio is a useful measure of the financial performance of the company.

Liquidity Ratio

The liquidity ratio is the ratio that measures the ability of a company to meet its current obligations or debt. There are three parts to the liquidity ratio; current ratio, quick ratio, and days cash on hand. Current ratio measures short-term or current assets that are available to cover short-term liabilities. To calculate the current ratio, you divide the total current assets by the total current liabilities. Quick ratio is a more conservative measure of liquidity. It uses the same formula but only uses the most quickly accessible assets in its calculation including cash & cash equivalents, short-term investments, and accounts receivable. These are added together and then divided by total current liabilities. Days cash on hand is the number of days the company could stay in operation if it stopped collecting cash. This calculation is complex and the order of operation for it requires careful attention. It is calculated as follows: First you find the denominator (the number below the line in the equation). Take the operating expense - depreciation and amortization / number of days in the period. Then you take the unrestricted cash & cash equivalents and divide it by the total found for the denominator.Liquidity ratio is useful when a company is seeking new loans for equipment or upgrades. This gives them an idea of whether a lender would be willing to approve the loan.

Debt Performance Ratio

Debt performance ratios are used to judge the creditworthiness of the company. Capitalization ratios measure the proportion of the assets that were funded by debt (loans). Coverage ratios measure the company's ability to pay their debts based on current income. There are three calculations in debt performance ratios. Debt ratio is the comparison of debt to assets and is calculated by dividing total liabilities by total assets. Debt to equity ratio measures the investment by lenders and suppliers vs shareholders and is calculated by dividing total liabilities by total equity. Times interest earned measures the amount of income that is available to pay interest on debt. This ratio is calculated by dividing earnings before interest and taxes by interest expense. This ratio is also used to determine if a lender will approve additional funds.