Microsoft

Financial Ratio Analysis

Year: 2021 - 2023

Weekend workout

About Financial Ratios -

A financial ratio is a numerical expression that compares two values taken from a company's financial statements. Financial ratios are used to analyze various aspects of a company's performance, such as liquidity, profitability, efficiency, and solvency. There are many types of financial ratios, but they can be broadly classified into four categories:

1 - Liquidity ratios:
Measure a company's ability to pay off its short-term obligations with its current assets. Examples of liquidity ratios are the current ratio, the quick ratio, and the cash ratio.

2 - Profitability ratios -
Measure a company's ability to generate income from its operations. Examples of profitability ratios are the gross profit margin, the net profit margin, and the return on equity.

3 - Efficiency ratios -
Measure how well a company uses its assets and liabilities to generate sales. Examples of efficiency ratios are the inventory turnover, the receivables turnover, and the asset turnover.

4 - Solvency ratios -
Measure a company's ability to meet its long-term obligations with its total assets. Examples of solvency ratios are the debt-to-equity ratio, the interest coverage ratio, and the debt service coverage ratio.

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