Finance Formulas / July 17, 2018 / Kenley Hopper
The current ratio is mainly used to give an idea of a company's ability to pay back its liabilities (debt and accounts payable) with its assets (cash, marketable securities, inventory, accounts receivable). As such, current ratio can be used to make a rough estimate of a company’s financial health. The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash.
Earnings per share, the value of earnings per share of outstanding common stock, is a very important measure to assess a company's financial health. When reporting financial results, revenue and EPS are the two most commonly assessed metrics. EPS is reported on a company's income statement, and only public companies are required to report it. In their earnings reports, companies report both primary and diluted EPS, but the focus is generally on the more conservative diluted EPS measure. Dilutive EPS is considered a conservative metric because it indicates a worst-case scenario in terms of EPS.
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