These ratios are often used by creditors to determine the ability of the business to repay loans. For this calculation it is common practice to include loans from owners in equity rather than in debt. The higher the ratio, the greater the risk to a present or future creditor. If you think that you might be in this situation, talk to your accountant or financial advisor. Lenders look at this ratio to determine if there is adequate cash to make loan payments.
Most lenders also have limits for the debt coverage ratio.
The ratios in this section measure the ability of the business to make a profit. Look for a steady increase in sales. Percentage of sales used to pay for expenses which vary directly with sales. Look for a stable ratio as an indicator that the company is controlling its gross margins. Look at the trend from month to month.