88 through 1992. The debt to equity ratio measures total debts divided by equity, and is a measure of whether the company obtains the bulk of its funds from creditors or from owners. The remaining two ratios, current liability to equity and long-term debt to equity, break the first ratio down into its component short-term and long-term parts.
MicroAge has a strong reliance on short-term debt; however, its long-term debt as a percentage of equity has been declining over the past five years. The total debt to equity ratio, while remaining high, declined from 1991 to 1992, indicating that the company may be able to better manage its short-term financing.
Activity ratios measure the utilization of the firms assets, including inventory, fixed assets and net working capital. The chart on the next page illustrates key activity ratios for MicroAge over the past five years. The inventory turnover figure can indicate whether a company has an excess of finished goods. Low inventory turnover means that the company is spending additional funds in
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