What are financial ratios and why use them?
Ratio – A ratio is calculated by dividing one number by another. Information from a company’s financial statement can be used to develop ratios that can then be compared with industry norms. You can also use ratios to compare a company to its competitors. Types of Financial Ratios – There are many different kinds of ratios, but they are traditionally classed to reflect five main aspects of businesses: liquidity, leverage, asset turnover, profitability, and market value. For example, the most common liquidity ratio is the current ratio. This is calculated by dividing the company’s current assets by its current liabilities. For more information on calculating ratios and their uses, search your library’s catalog for books with the Library of Congress Subject Heading “ratio analysis”. Each ratio book includes instructions on how to use it, and most tell how the ratios are calculated and how to interpret the numbers. To locate an industry in some of these publications, you will need to iden
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