Types of ratios in capital management

The capital management helps the company to maintain the cash conversion process smoothly. That means the time require to convert the assets in to cash should be less. They use the company resources itself to improve the company profit and earnings. It is always advised to reach a capital management services like Melvin capital management maintained by Gabe Plotkin. There are three types of capital ratios which are very important. Let us discuss about them.

First Current ratio

  • The current ration which also known as working capital ratio. The current ratio is calculated using the formula that is dividing the current assets with the current liabilities. It is the one of the important indicator for company to understand the finical condition if they can pay all there short term debts or not.
  • The resulted ration is considered to be one among the three pre defined ratios that is if the ratio is less than one than the company financial condition to pay their short term debts in the current year is not possible. If they have to pay them then they might need to take some financial help or sell their assets.
  • If the ration falls above one and below two then they are in good condition and if the ratio is more than two that means they are not managing their assets in way which will increase their revenue.

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Second Collection ratio

  • This ration tells us about the company efficiency in managing the account receivables. The calculation done by the collection ratio will give the information about in average how many days does it take to get the cash after a sale is completed. If the company is able to get there payments on time from their customers than the collection ratio will be considered low and if the collection time is more than then the ratio is more.

Third Inventory turnover ratio

  • The final step in managing the capital is maintaining the inventory of a company. It is very essential that the company maintain enough inventories to meet the requirements of the customer. Once the inventory ration is calculated if the ratio is less than that means the company inventory is more and if the ratio is high that means the company inventory does not have sufficient product which will meet the customer requirements.

Conclusion

Hope all these different types of ratio will help you to identify the issues in your company and increase your company profits.