Analysis financial ratios

Duration: 6min 36sec Views: 150 Submitted: 01.09.2019
Category: Romantic
Some of the names—"common size ratios" and "liquidity ratios," for example—may be unfamiliar. But nothing in the following pages is actually very difficult to calculate or very complicated to use. And the payoff to you can be enormous. The goal of this document is to provide you with some handy ways to look at how your company is doing compared to earlier periods of time, and how its performance compares to other companies in your industry. Once you get comfortable with these tools you will be able to turn the raw numbers in your company's financial statements into information that will help you to better manage your business.

How to Analyze Your Business Using Financial Ratios

Financial ratio analysis — AccountingTools

Financial ratios are relationships determined from a company's financial information and used for comparison purposes. Examples include such often referred to measures as return on investment ROI , return on assets ROA , and debt-to-equity, to name just three. These ratios are the result of dividing one account balance or financial measurement with another. Financial ratios can provide small business owners and managers with a valuable tool with which to measure their progress against predetermined internal goals, a certain competitor, or the overall industry. In addition, tracking various ratios over time is a powerful means of identifying trends in their early stages. Ratios are also used by bankers, investors, and business analysts to assess a company's financial status. Ratios are calculated by dividing one number by another, total sales divided by number of employees, for example.

Ratio Analysis

Financial ratio analysis is performed by comparing two items in the financial statements. The resulting ratio can be interpreted in a way that is not possible when interpreting the items separately. Here is a list of various financial ratios.
Financial ratios compare the results in different line items of the financial statements. The analysis of these ratios is designed to draw conclusions regarding the financial performance, liquidity , leverage , and asset usage of a business. This type of analysis is widely used, since it is solely based on the information located in the financial statements, which is generally easy to obtain. In addition, the results can be compared to industry averages or to the results of benchmark companies, to see how a business is performing in comparison to other organizations.