Financial Ratio Analysis List of Financial Ratios


financial ratios list

In this case, the total liability of the company is $420M ($300M + $120M), but the equity is only $300M so, in the calculation of ROE, only equity will be used. Operating profit is also known as earnings before interest and tax (EBIT). The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Ask a question about your financial situation providing as much detail as possible. Your information is kept secure and not shared unless you specify.

  • Liquidity ratios provide a view of a company’s short-term liquidity (its ability to pay bills that are due within a year).
  • It involves the study of economic, industry, and company information.
  • Business valuation is simply another name for determining the financial or ‘fair’ value of a given company.
  • If your inventory turnover is rising, that means you are selling your products faster.

Key market value ratios include dividend yield, earning per share (EPS), the price-to-earnings ratio, and the dividend payout ratio. Comparing financial ratios with that of major competitors is done to identify whether a company is performing better or worse than the industry average. For example, comparing the return on assets between companies helps an analyst or investor to determine which company is making the most efficient use of its assets. This means that this company completely sells and replaces its inventory 5.9 times every year. The business owner should compare the inventory turnover with the inventory turnover ratio with other firms in the same industry.

Financial Ratio Analysis: Definition, Types, Examples, and How to Use

Current assets are assets that can be converted into liquid cash easily. Coverage ratios measure a business’ capacity to support its debts and different commitments. Analysts utilize the coverage ratios across regular reporting periods to draw a pattern that predicts the organization’s future financial position.

They review how debt stacks up against the categories of assets and equity on the balance sheet. They give investors an idea of a company’s financial health as it relates to a potential burden of debt. ​The final category of financial ratios included in our list is the business valuation ratio. A P/E ratio measures the relationship of a stock’s price to earnings per share. A lower P/E ratio can indicate that a stock is undervalued and perhaps worth buying, but it could be low because the company isn’t financially healthy.

So what is the financial ratio used to assess a company’s solvency?

Additionally, consulting a wealth management professional can help you navigate these limitations and make informed decisions. Most profitability ratios determine a company’s return on investment from their inventory and other assets, and so are related in some ways to that company’s business efficiency. Also known as leverage ratios, solvency ratios directly measure a company’s total debt against its assets, equity, and earnings. Ratio analysis is important because it may portray a more accurate representation of the state of operations for a company.

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