This measures the company's ability to meet current debt obligations. The higher the ratio the more liquid the company. For example, a current ratio of 3.0 means that the company's current assets, if liquidated, would be sufficient to pay for three times the company's current liabilities. A company's debt ratio is a leverage ratio calculated by dividing total liabilities by total assets. This ratio measures the extent to which total assets have been financed with debt.
Debt is a two-edged sword.
During times of economic stress or rising interest rates, companies with a high debt ratio can experience financial problems. However, during good times, debt can enhance profitability by financing growth at a lower cost. A company's inventory turnover is an efficiency ratio calculated by dividing cost of goods sold by inventories. Of course, this type of ratio is highly dependent on the industry. A grocery store chain will have a much higher turnover than a commercial airplane manufacturer.