Financial ratios are helpful indicators of a firm’s performance and financial situation. They are used to analyze trends and compare the company performance over time or to other competitors. Therefore, it is important to have a clear understanding and set of financial rations which can be used for that purpose. This paper describes some of the most important financial ratios.
Specifically, the following ratios will be explained:
- Liquidity ratios: Quick ratio, Cash ratio.
- Financial leverage ratios: Long term debt ratio, Times interest earned ratio
- Profitability ratios: Profit margin, Return on assets, Return on equity, Total asset turnover
- Other Ratios: Price earnings ratio (Value Ratio)
Each ratio has its own value and provides specific information. This paper will less focus on how to calculate the ratios, but more on which kind of information they provide about a firm. In addition, examples will be given on how to leverage the different ratios.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Liquidity Ratios
- Quick Ratio
- Cash Ratio
- Financial Leverage Ratios
- Long Term Debt Ratio
- Times Interest Earned Ratio
- Profitability Ratios
- Profit Margin
- Return on Assets
- Return on Equity
- Total Asset Turnover
- Other Ratios
- Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to provide an overview of various financial ratios and their significance in analyzing a firm's performance and financial situation. It focuses on how these ratios are used to evaluate trends, compare company performance over time and with competitors, and ultimately, to make informed financial decisions.
- Understanding the importance and application of financial ratios in analyzing a firm's financial health.
- Exploring the key categories of financial ratios, including liquidity, leverage, profitability, and other important metrics.
- Examining the specific insights provided by each ratio and how they can be leveraged for effective decision-making.
- Understanding how these ratios are used by stakeholders, such as bankers, investors, and policymakers.
- Highlighting the relevance of these ratios in assessing a firm's short-term and long-term financial strength.
Zusammenfassung der Kapitel (Chapter Summaries)
Introduction
This section introduces the concept of financial ratios as vital indicators of a firm's performance and financial status. It emphasizes the importance of understanding and utilizing these ratios for analyzing trends, comparing company performance, and making informed decisions.
Liquidity Ratios
This chapter delves into liquidity ratios, specifically the quick ratio and cash ratio. It explains how these ratios measure a company's ability to meet its short-term obligations and the importance of these ratios for bankers, investors, and lenders in assessing creditworthiness. It also explores how these ratios are calculated and how they are used to make informed decisions.
Financial Leverage Ratios
This section discusses financial leverage ratios, particularly the long-term debt ratio and the times interest earned ratio. It explains how these ratios measure the company's reliance on debt financing and its ability to manage its debt obligations. It also emphasizes the importance of these ratios for investors and policymakers in assessing the company's financial risk and its ability to repay its debts.
Profitability Ratios
This chapter focuses on profitability ratios, including profit margin, return on assets, return on equity, and total asset turnover. It explains how these ratios measure a company's ability to generate profits in relation to its expenses and assets. It also discusses how these ratios are used to evaluate a company's overall profitability, its operational efficiency, and its ability to generate returns for its stakeholders.
Schlüsselwörter (Keywords)
Key terms and concepts covered in this paper include financial ratios, liquidity ratios, leverage ratios, profitability ratios, short-term obligations, long-term solvency, creditworthiness, financial strength, return on assets, return on equity, and debt management.
- Quote paper
- Dennis Schindeldecker (Author), 2016, Financial Ratios. Explanation of the most important financial ratios for economic evaluations, Munich, GRIN Verlag, https://www.grin.com/document/368180
