The purpose of this post is to introduce the subject of financial analysis to small businesses, entrepreneurs and young managers, especially the significance of financial ratios.
What is financial ratio analysis?
Financial ratio analysis is the selection, evaluation and interpretation of financial data in easier to understand ratios, which have been identified as critical indicators of financial performance of the business and can be used for strategy and decision-making. Financial ratio analysis is popularly used to compare a firm's financial performance over a period of time (trend analysis) or to assess performance in comparison to other businesses.
Sep 21, '09
I completely agree with you that Finance ratio analysis is the most complex aspects of Business management. One should monitor the periodic performance increase against the financial plan. In order to know what the financial position of a company is, one must compare the true figures extracted from the financial statements to other figures.
Tell me more about various types of financial ratios.
Oct 31, '09
Here, I am giving you a short description about various financial ratios -
- Liquidity Measurement Ratios: - Liquidity ratio is calculated by comparing a company's most liquid assets. The greater the coverage of liquid assets to short-term liabilities, the better as it is a clear signal that a company can pay its debts that are coming due in the near future.
- Profitability Indicator Ratios:- Thisdiscusses the different measures of corporate profitability and financial performance.
- Debt Ratios:- These ratios give users a general idea of the company's overall debt load.
- Operating Performance Ratios:- These ratios look at how well a company turns its assets into revenue as well as how efficiently a company converts its sales into cash.
- Cash Flow Indicator Ratios:- These ratios can give users another look at the financial health and performance of a company.
- Investment Valuation Ratios:- These ratios can be used by investors to estimate the attractiveness of a potential or existing investment and get an idea of its valuation.
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