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Corporate finance ratios are quantitative measures that are used to assess businesses. These ratios are used by financial analysts, equity research analysts, investors, and asset managers to evaluate the overall financial health of businesses, with the end goal of making better investment decisions.
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Nov 1, 2015 · Financial Ratios & Analysis is a book based upon the App, Financial Ratio Flashcards. Both the book and app covers the most important financial ratios using both flashcards along with written and audio
- Liquidity Ratios
- Leverage Financial Ratios
- Efficiency Ratios
- Profitability Ratios
- Market Value Ratios
- Related Readings
Liquidity ratios are financial ratios that measure a company’s ability to repay both short- and long-term obligations. Common liquidity ratios include the following: The current ratiomeasures a company’s ability to pay off short-term liabilities with current assets: Current ratio = Current assets / Current liabilities The acid-test ratiomeasures a ...
Leverage ratiosmeasure the amount of capital that comes from debt. In other words, leverage financial ratios are used to evaluate a company’s debt levels. Common leverage ratios include the following: The debt ratiomeasures the relative amount of a company’s assets that are provided from debt: Debt ratio = Total liabilities / Total assets The debt ...
Efficiency ratios, also known as activity financial ratios, are used to measure how well a company is utilizing its assets and resources. Common efficiency ratios include: The asset turnover ratiomeasures a company’s ability to generate sales from assets: Asset turnover ratio = Net sales / Average total assets The inventory turnover ratiomeasures h...
Profitability ratiosmeasure a company’s ability to generate income relative to revenue, balance sheet assets, operating costs, and equity. Common profitability financial ratios include the following: The gross margin ratiocompares the gross profit of a company to its net sales to show how much profit a company makes after paying its cost of goods s...
Market value ratios are used to evaluate the share price of a company’s stock. Common market value ratios include the following: The book value per share ratio calculates the per-share value of a company based on the equity available to shareholders: Book value per share ratio = (Shareholder’s equity – Preferred equity) / Total common shares outsta...
Thank you for reading CFI’s guide to financial ratios. To help you advance your career in the financial services industry, check out the following additional CFI resources: 1. Activity Ratios 2. Comparable Company Analysis 3. Enterprise Value-to-Sales (EV/Sales) 4. Solvency Ratio 5. Types of Financial Models 6. See all accounting resources 7. See a...
Meaning Earnings per Share (EPS) = Income earned per 1 common share outstanding Net Income - Preferred dividends Outstanding number of common shares The price that investors are willing to pay per $1 of
As stated earlier, accounting ratios are an important tool of financial statements analysis. A ratio is a mathematical number calculated as a reference to relationship of two or more numbers and can be expressed as a fraction, proportion, percentage and a number of times.
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These ratios are indicators that a company’s financial statements might be fishy—in other words, that the company’s managers could be “managing their accounting” (rather than the actual operations of the firm) to make things appear better than they are.
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Common size financial statements are an important tool in financial statement analysis. This Chapter explains the calculation and interpretation of common size balance sheets as well as common size income statements. This Chapter also defines a wide variety of ratios derived from financial statement information.
