Which of the following ratios appears on a common-size balance sheet?
A) Debt to asset ratio
B) Net working capital to total assets
C) Net profit margin.
Balance Sheet Ratios
They deal with relationship between two items appearing in the balance sheet, e.g., current assets to current liability or current ratio. These ratios are also known as financial position ratios since they reflect the financial position of the business. Balance sheet ratios evaluate a company’s financial performance. There are three types of ratios derived from the balance sheet: liquidity, solvency, and profitability. Liquidity ratios show the ability to turn assets into cash quickly. Solvency ratios show the ability to pay off debts.Profitability ratios show the ability to generate income.
Ratios derived from a balance sheet can provide insight into a company’s finances, but they only cover a specific period of time. You get a snapshot of the company’s past performance, not of its present performance.The amount spent on specific projects is often not disclosed in the public balance sheets, which could be useful information for investors. Research and development costs are often reported in the public balance sheets. That’s useful because it tells you that the company is investing in itself, but not much else is helpful.