The financial ratios are:
Liquidity Ratio- The firms ability to satisfy the short term obligations. (Gitman, 2007) Activity ratio- That measure the speed with which various accounts are converted into sales or cash, inflows or outflows. (Gitman, 2007) Debt ratio- That measures the proportion of total assets financed by the firms creditors. (Gitman, 2007) Profitability ratio- measures enable the analyst to evaluate the firms profits with respect to a given level of sales a certain level of assets or owners investment. (Gitman, 2007) Market ratio-related a firms market value as measured by it's current share price to certain accounting values.
The financial ratios are used by debt issuers, business insiders, and stock pickers. Ratios measure many aspects of the business but are not used in isolation from the statements. Financial ratios are considered an essential part of the financial statement. The results of a ratio give ascend to the question why. This is needed to answer the ratios comparisons.
Between companies, industries, time periods.
Between companies and the industry.
Ratios firm different industries which face different risks like capital requirements and competition that are not always comparable. (Wikipedia, 2007)
Relationships with financial ratios demonstrates the different aspects within small business operations. Elements from the balanced sheet and income sheet are extracting particular points that focus the mind. Small Business owners and managers with the financial ratio tool can measure their progress against internal goals that competitors and the industry can determine. Tracking various ratios over time is a very powerful way to identify as they develop. Ratios are used by bankers, investors, and analysts to evaluate various attributes of a companies financial strength and operations. Ratios are determined by dividing one by the other and are usually expressed as a percent. Ratios enable business owners to examine the...
References: Answers, worlds greatest encyclodictionalmanacapedia, (2007), retrieved February 10, 2007,
from the world wide web, http://www.answers.com/financial%20ratio
Lawrence J. Gitman, Principles of Managerial Finance, (2006), Eleventh edition, Pearson
Addison Wesley, San Diego University, retrieved February 10, 2007, (Chapter 2 pg 57-65)
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