Ratios are the quickest and best way to get a clear picture of the financial health of a business. Assuming that the financial data on which these ratios are calculated is accurate and current – which is not always the case with small businesses, or even former corporate giants like Enron – dividing total equity into total liabilities gives a rough but usually dependable picture of the ability of an enterprise to pay it debts, as well as its creditworthiness to take on a new loan. A ratio of 2:1, with a figure of less than 2 indicates a company is not carrying too much debt.
             While the Debt to Equity Ratio is the most common and fundamental measure used to determine how much credit a business can safely handle, other ratios may be used to give greater precision to an assessment of whether it can pay its bills. The Acid Test or Quick Ratio excludes current inventory and prepaid items from assets under the assumption that they cannot be quickly converted into cash. This gives an idea of how quickly a debtor can repay a loan or line of credit (Canadaone, 2006).
             Even an organization with booming sales can be heading for a cash crunch if it doesn't have the financial reserves or credit to buy the raw materials necessary to fulfil its orders. The Current Ratio deals with both current assets and liabilities, and therefore theoretically gives a more accurate picture of how quickly a loan can be repaid.
             2. Financial statements do not give a complete picture of a company's well being. As the recent massive corporate scandals from Worldcom to Enron have shown, books can be easily cooked in many ways to deceive both lending institutions and stockholders. But even assuming all the data they contain is accurate, there are many factors that influence a company's future that do not appear in these quarterly reports. These might include things like changes in the market, competitive advantages, technological innovatio...