What is meant by financial ratios?
Complete introduction of all types of financial ratios
Financial ratios are numerical values that are extracted from a company’s financial statements for the purpose of obtaining meaningful information. The numbers extracted from the company’s financial statements, such as the balance sheet, profit and loss statement, and cash flow statement, are also used in cases such as quantitative analysis and evaluation of liquidity, growth, profit margin, profitability, rate of return, valuation, etc. One of the most common ways of financial analysis is calculating and checking financial ratios. These ratios are defined in several groups and each of them deals with one aspect of the companies’ financial situation. Financial ratios are divided into the following main categories:
Liquidity ratios
Leverage and coverage ratios
Activity ratios
Profitability ratios
Market value ratios
A look at the applications and users of financial ratio analysis
The analysis of financial ratios pursues two basic goals:
Follow up on company performance
Determining the financial ratios in each period and tracking the change of their values during the period, with the aim of discovering clues that lead to the progress of the institution. For example, an increase in debt-to-asset ratio can indicate that the company is under debt pressure, and in the end, the company faces the risk of bankruptcy.
Ability to compare company performance
The comparison of financial ratios with the main competitors is done in order to determine which part of the company performs better or worse than the average of the related industry. Comparing return on assets between companies helps an analyst or investor to identify which companies have made better use of their assets to increase profitability. The users of financial ratios are divided into two groups of internal and external users:
External users: include financial analysts, retail investors, lenders, competitors, tax authorities, regulatory authorities and industry observers.
Internal users: include team manager, employees and owners
Mehdi Koh Soltani (financial services, accounting, financial and tax consultant):
The group of accountants and auditors of Tabriz
https://t.me/joinchat/BnzBsTuioTshiXBwf9bBPQ