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Prior to starting our videos on ratio analysis there are a few terms that one needs to know:

• Liquidity is the ability of the company to meet its current debt obligations.
• Solvency is the ability of the business to remain in business over a long period of time in terms of its ability to pay its long-term debts.
• Profitability is the company’s ability to generate a profit.

The Current Ratio tutorial includes the explanation of three ratios. The Current Ratio, Working Capital computation and the execution of the Quick Ratioare demonstrated. These are Liquidity ratios. (Transcript)

Next, we will review the Inventory Turnover In this tutorial, Inventory Turnover Ratio and Accounts Receivable Turnover are demonstrated. These areLiquidity ratios. (Transcript)

In the Debt Ratio tutorial, this Solvency ratio is demonstrated. (Transcript)

Moving on to the Profitability tutorial, Return on Net Sales and Return on Assets are demonstrated. These are Profitability ratios. (Transcript)

Hopefully you have found this one hour investment to be profitable!

IMPORTANT: Some ratios call for averages, (e.g. inventory turnover). Since CanGo has only one balance sheet available, you will not use an average, you will use the appropriate number from the most recent year’s financial statement. Also assume that there is no interest expense. Good luck!