Financial ratios give a user a good overview of the financial position of a firm under different categories. The main financial ratios are liquidity, profitability, market value ratios, efficiency ratios, and leverage ratios. Other financial statement users are interested in different classifications of ratios depending on their area of interest. From the key performance indicator analysis of Rush Industries ratio analysis, the two ratios that seem to be most significant are acid ratio and net profit margin ratios.
The acid test ratio, also known as the quick ratio, is a liquidity ratio that shows the liquidity position without using its stock. Liquidity refers to the ability of a firm to turn its short-term assets into cash for meeting short-term obligations. The acid ratio is a better measure of liquidity as it shows the liquidity position of the Rush industry without including stock. Stock is deducted from the current asset when computing this ratio, as supply is not highly liquid compared to the other short-term assets (Lalithchandra, 2021). Therefore, the ratio shows the actual liquidity position of the Industry at the time under analysis.
The net profit margin is a profitability ratio that shows a firm’s profit from its sales after eliminating all the expenses, taxes, and expenses incurred in the period (Nariswari
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