Categories: WikiCFO

Financial Ratios

See also:
Quick Ratio Analysis
Price to Book Value Analysis
Price Earnings Growth Ratio Analysis
Time Interest Earned Ratio Analysis

Use of Financial Ratios

Financial Ratios are used to measure financial performance against standards. Analysts compare financial ratios to industry averages (benchmarking), industry standards or rules of thumbs and against internal trends (trends analysis). The most useful comparison when performing financial ratio analysis is trend analysis. Financial ratios are derived from the three financial statements; Balance Sheet, Income Statement and Statement of Cash Flows.

Financial ratios are used in Flash Reports to measure and improve the financial performance of a company on a weekly basis.

Financial Ratio Categories

The following five (5) major financial ratio categories are included in this list.

  • Liquidity Ratios
  • Activity Ratios
  • Debt Ratios
  • Profitability Ratios
  • Market Ratios

Liquidity Ratios

Liquidity ratios measure whether there will be enough cash to pay vendors and creditors of the company. Some examples of liquidity ratios include the following:

Activity Ratios

Activity ratios measure how long it will take the company to turn assets into cash. Some examples of activity ratios include the following:

Debt Ratios

Debt ratios measure the ability of the company to pay its’ long term debt. Some examples of debt ratios include the following:

Profitability Ratios

The profitability ratios measure the profitability and efficiency in how the company deploys assets to generate a profit. Some examples of profitability ratios include the following:

Market Ratios

The market ratios measure the comparative value of the company in the marketplace. Some examples of market ratios include the following:

If you want to check whether your unit economics are sound, then download your free guide here.

The Strategic CFO

View Comments

Recent Posts

IN CRISIS? GET A STRATEGIC CFO! – CEO Blindspots Podcast

Friend of the firm, Birgit Kamps, recently had Strategic CFO President, Dan Corredor, as a…

2 days ago

SHRM calls ICHRA the 401K for Group Health Benefits

Fed-up with group health insurance? ICHRA is the new way to offer great health benefits…

2 weeks ago

Selling Your Business & the Value of Accounting Records

M&A Current Environment 2020 and 2021 have been record years for mergers and acquisitions (M&A)…

2 months ago

CPA’s are Specialized

The Difference in CPAs Looking back at my career I don’t know how many times…

5 months ago

Accounting VS. Bookkeeping

In our industry we often run into businesses that do not understand the difference between…

5 months ago

How to Improve Your Resume

The concept of resumes might seem difficult to grasp at times. After all, you're set…

1 year ago