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Ratio Analysis - Coggle Diagram
Ratio Analysis
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Current ratio
Shows, for every 1 liability, how many assets are available to pay off the short-term liabilities
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Depreciation
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Straight line method
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This assumes that the fall in the value of the asset is the same whether in the first year or last year of the asset's usefulness
Advantages:
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Encourages long-term thinking (because it does not cut profits too much in the first year of investment)
Dusadvantages:
Does not deprecate assets such as cars and machinery realistically (leaves assets overvalued on the balance sheet)
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If an asset becomes obsolete earlier than expected the under-provision for depreciation will require a large write down of the asset's book value
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