
Financial Aspects of Franchising 259
3. Ratios can reveal leverages that can be used for profi tability.
4. Ratios can reveal important trends, which are not evident by looking at
the fi gures in income statement or profi t and loss statements.
5. Ratios can help in developing strategies in various areas of business.
The most commonly used ratios and how they can be used is described
separately as follows:
1. Current Ratio (also known as “liquidity ratio,” “cash asset ratio,” or
“cash ratio”) Measures solvency.
Current Ratio = Current Assets ÷ Current Liabilities
This ratio shows the company’s ability to pay back its short-term lia-
bilities (debt ...