FIN W2D

Please respond to the following discussion topic. Your initial post should be a minimum of 300 words in length. Then, make at least two thoughtful responses to your fellow students’ posts.Describe the three categories of ratios used in ratio analysis. When working on assessing the company you chose, which of these ratios do you think is the most important indicator of successful performance, why? 
 
INITIAL POST
·  Create a thread (initial post) by 11:59 pm EST on Sunday (Day 5)
·  Write at least 300 words
·  The majority of your post must be original words, thoughts, and ideas
·  Identify the source of all information that you use
·  Post must be typed in the discussion message box, not attached as a document
REPLY POSTS
·  Post at least two replies to either peers or the instructor by 11:59 pm EST Tuesday (Day 7)
·  At least one reply post must be made on a different day than your initial post
·  Write at least 150 words per reply
·  The majority of your posts must be original words, thoughts, experiences, and/or ideas
·  Identify the source of all information that you use
·  Post must be typed in the discussion message box, not attached as a document

Lynwood Owens 
I chose Cummins Inc. because of its large turn over in distribution and sales. Cummins diesel engines are used around the world for so many applications. In weeks one research, I found that Cummins Inc. used modern technologies and innovative ways to produce better engines. I personally like Cummins because of personal experiences. Years ago when I was a Platoon SGT, my platoon and I would drive our trucks all day without fail, and the sound of those engine was great. However, I believe the ratio analysis is geared towards activity. Activity describes how a business operates by its resources and resources that are available. The shares holders of that company or business, pool resources that cut out second and third party occupants. Working capital, fixed asset turnover, and total turnover work in unison.  
For example, one of Cummins largest long haul transporters is Freightliner Trucks. Freightliner is intrigued on the idea of having an engine that is lightweight, produces a green foot print, fuel and cost efficient. Off shore companies, mining companies, and medical corporations act as shareholders because of the loyalty that Cummins Inc. gives. While conducting more research on Activity, I noticed Liquidity also identifies one of Cummins Inc. sales characteristics. Cummins most current ratio is 2006 through 2019. Short term obligations is very important because this allows you to target short term goals and gives better visual to long term financial investments.  The assets and liabilities of Cummins Inc. do flux irate, however, they are like any other successful company that endures rise and fall in the industry.  I believe Cummins Inc overall is the top competitor in diesel engine production and sales. 
Leeds, P. (2019) The 5 Types of Financial Ratios. The Balance. Retrieved from. https://www.the balance.com/types-of-financial-ratios
Macrotrends (2019) Cummins Current Ratio 2006-2019 CMI. Retrieved from. https://www.macrotrends.net/stocks/charts/CMI

LuGene Ryan 
The three categories of ratios used in ratio analysis is liquidity, solvency and profitability. Liquidity ratios assess the liquidity of a company which is basically whether it is well equipped to meet its short-term obligations on time. Such ratios include current ratio, quick ratio, cash ratio etc. The current ratio is the most popular liquidity ratio. It is derived by dividing the current assets by current liabilities. The current ratio should be higher than 1 in order to conclude the business has strong liquidity.
The second  category is solvency ratios. These ratios comprise of debt to equity ratio, times to interest earned ratio, etc. These ratios assess the long-term debt bearing capacity of a business.  The debt to equity ratio is derived by dividing the total liabilities by equity. A very high ratio indicates the business has more dependency on debt capital rather than equity. It is considered to be risky to have a very high debt-equity ratio. Times interest earned ratio measures the company’s ability to meet its interest obligation from its net income before interest and taxes. 
The third category of ratios used in ratio analysis is profitability ratios. Profitability ratios like net margin, gross margin, return on equity, return on assets etc assess how profitable a business is. Net margin measures the ratio of net income to net sales. Return on equity is the ratio of net income to the shareholders’ equity. The higher the profitability ratio, the more financially stable a company is considered to be. 
The most important indicator of successful performance cannot be just one ratio of these ratios. All angles of financial performance would need to be assessed in order to determine whether a business is successful or not. For instance, a business could be making high profits but could be deep in debt which would not be considered a good thing.