Financial Ratio Analysis and Formulas
Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company’s financial statements. The level and historical trends of these ratios can be used to make inferences about a company’s financial condition, its operations and attractiveness as an investment.
Financial ratios are calculated from one or more pieces of information from a company’s financial statements. For example, the “gross margin” is the gross profit from operations divided by the total sales or revenues of a company, expressed in percentage terms. In isolation, a financial ratio is a useless piece of information. In context, however, a financial ratio can give a financial analyst an excellent picture of a company’s situation and the trends that are developing.
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Liquidity ratios A liquidity ratio is a useful tool to determine the company short term financing position. The higher the value indicates company better liquidity position in other words company assets are valuable and can easily converted into cash. Most common liquidity ratios are current ration quick ratio. Current Ratio - Current Assets/current Liabilities The current ratio derives...Read more
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