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Ratio analysis
Accounting ratio
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Cards (10)
Ratio Analysis
is a study of
relationships
among various
financial
factors in a business.
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Types of Accounting Ratios include
Liquidity
Ratios,
Profitability
Ratios,
Solvency
Ratios, and
Efficiency
Ratios.
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Liquidity Ratios
measure a company's ability to meet
short-term obligations
and include
Current Ratio
and
Quick Ratio.
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Profitability Ratios
indicate the
profitability
of a company and include
Gross Profit Margin
,
Net Profit Margin
, and
Return on Investment
(ROI).
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Solvency
Ratios assess a company's
long-term
financial stability and include
Debt-to-Equity
Ratio and
Interest Coverage
Ratio.
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Efficiency Ratios
evaluate how effectively a company utilizes its assets and manages its liabilities and include
Inventory Turnover
,
Receivables Turnover
, and
Asset Turnover.
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Ratios
are meaningful when compared to
industry
benchmarks, historical
performance
, or
competitors.
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A
thorough analysis
of
ratios
involves considering the company's
industry
,
economic conditions
, and the
overall financial strategy.
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Ratios
provide insights, but they have
limitations
and should be used
alongside
other
financial analysis methods.
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Changes in accounting policies or
manipulation
of financial statements can affect
ratios.
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