Accounting ratio

• Ratio Analysis is a study of relationships among various financial factors in a business.
• Types of Accounting Ratios include Liquidity Ratios, Profitability Ratios, Solvency Ratios, and Efficiency Ratios.
• Liquidity Ratios measure a company's ability to meet short-term obligations and include Current Ratio and Quick Ratio.
• Profitability Ratios indicate the profitability of a company and include Gross Profit Margin, Net Profit Margin, and Return on Investment (ROI).
• Solvency Ratios assess a company's long-term financial stability and include Debt-to-Equity Ratio and Interest Coverage Ratio.
• Efficiency Ratios evaluate how effectively a company utilizes its assets and manages its liabilities and include Inventory Turnover, Receivables Turnover, and Asset Turnover.
• Ratios are meaningful when compared to industry benchmarks, historical performance, or competitors.
• A thorough analysis of ratios involves considering the company's industry, economic conditions, and the overall financial strategy.
• Ratios provide insights, but they have limitations and should be used alongside other financial analysis methods.
• Changes in accounting policies or manipulation of financial statements can affect ratios.