Liquidity Ratio, Current Ratio, Leverage Ratios and Total Debt Ratio of Aspen Industries - Research Paper Example

The paper "Aspen Industries' Financial Ratios" is a good example of a case study on finance and accounting. Debt ratio analysis is considered a solvency ratio that brings out the total liabilities of a firm as a percentage of the total assets that the firm has. In using this to make a loan decision, it is used to show the assets that the company has that they are to sell in order to pay off the debts that they have (Bull, 2008). The debt ratio enables investors and also creditors to analyses the overall debt burden on the company that they operate as well as the ability of the firm to pay the debts that they have in the future when the economic times are uncertain.

The company that was chosen had a debt ratio of 0.61 in 2013 and the ratio reduced to 0.50 in 2014. In loan consideration, companies that have a high level of liabilities in their operation compared to assets are considered highly leveraged and these are riskier to lenders. I recommend the company for a loan as it is observed that their debt ratio has reduced over the period and this makes them be legible and are thought to be able to pay their debts. Current ratio the current ratio is an efficiency and liquidity ratio which, measures the ability of a firm to pay off its short-term liabilities with the assets that the firm has at the current.

The current ratio is important in determining giving out loans to a company as it determines the liability that is due in the next year (Bull, 2008). Through this, it will indicate that the firm has a limited time that they are needed to raise the funds in order to raise funds so that they pay off for their liabilities. Current assets which the company has such as cash and marketable securities can be easily converted to cash. This analysis, shows that companies that have large amounts of current assets will more easily be able to pay off the current liabilities when they become due without the need to sell off the long-term assets.