Financial Ratios: Getting Started
What are ratios?
Ratios are financial measures that are used to evaluate a company's performance.
What is Ratio Analysis?
To do a ratio analysis, one must use certain financial data from the company's annual report/10K and compute specific ratios or percentages. Ratios can be used to evaluate the company, compare it to other companies or measure it's performance against it's industry norms.
Types of Ratios
Generally financial ratios can be classified into the following catagories (some examples are given)
- Profitability: measures how successful a company is at running its business
Gross Margin
Return on Investment
- Market: measures investors assesment of a company's performance
EPS (earnings-per-share)
Dividend Yield
- Liquidity: measures a company's ability to meet near term obligations
Current
Quick
- Leverage/ Risk: measures how much debt a company has on it's balance sheet
Debt/Equity
Interest Coverage
- Efficiency/ Operations : measures how effectively a company utilizes its assets and manages its liabilities
Inventory Turnover
Total Asset Turnover
Guide to Using Ratios
Financial Analysis Tools and Techniques: a Guide for Managers by ISBN: 0071395415Praise for Financial Analysis Tools and Techniques: "Bona fide treasury for executives, managers, entrepreneurs. Have long used this great work in corporate & university programs. Uniquely makes the arcane clear." Allen B. Barnes, Provost, IBM Advanced Business Institute. A candidate for every consultant-to-management's bookshelf. Its beauty lies in the dynamic model of the business system and its management decision framework.
Financial Statement Analysis a Practitioner's guide by ISBN: 9786610343140
Business Ratios and Formulas by ISBN: 1118239822A complete appraisal of analytical tools available to managers to assess performance Required reading for anyone starting, running, or growing a business, Business Ratios and Formulas, Third Edition puts answers at the fingertips of business managers, with nearly 250 operational criteria and clear, easy-to-understand explanations that can be used right away. The Third Edition includes twenty new measurements. Approximately 20 new measurements Offers a comprehensive resource of nearly 250 operational criteria An Appendix including a dictionary of accounting and finance terms A thorough list of every ratio and formula, and how to compile and interpret that information.
Finding books
Along with books on ratio analysis, books on financial statement analysis will disucss how to use and interpret ratios. To find books use the online Classic Catalog. Type in the appropriate subject term and click the SUBJECT tab. Acceptable Subject terms are:
Ratio Analysis
Financial Statements
Business Mathematics
Finance
Cash Flow
Corporations -- Finance
Business Enterprises--Finance
