I need to understand more about finalcial ratios

Business & Finance
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Lack of comparability between companies is one of the problems associated with using financial ratios. Financial ratios are a useful tool to track changes in business over time. However, ratios do a poor job at comparing one company with another, although they are often used that way. A company's choice of accounting policies used in its financial statements will impact its ratios. The ratios will not be comparable because the valuations are not comparable.

Nov 15th, 2015

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Financial ratios are mathematical comparisons of financial statement accounts or categories. These relationships between the financial statement accounts help investors, creditors, and internal company management understand how well a business is performing and areas of needing improvement.

Financial ratios are the most common and widespread tools used to analyze a business' financial standing. Ratios are easy to understand and simple to compute. They can also be used to compare different companies in different industries. Since a ratio is simply a mathematically comparison based on proportions, big and small companies can be use ratios to compare their financial information. In a sense, financial ratios don't take into consideration the size of a company or the industry. Ratios are just a raw computation of financial position and performance.

Ratios allow us to compare companies across industries, big and small, to identify their strengths and weaknesses. Financial ratios are often divided up into seven main categories: liquidity, solvency, efficiency, profitability, market prospect, investment leverage, and coverage.

Liquidity ratio, Solvency ratio, Efficiency ratio, profitability ratio, market prospect ratio, coverage ratio etc. are few type of financial ratios. If you want to know more about this go the link posted down.

http://www.myaccountingcourse.com/financial-ratios/

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Nov 15th, 2015

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