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New Post 8/11/2009 4:59 AM
User is offline Robert_us
2 posts
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Financial ratio analysis 

 The purpose of this post is to introduce the subject of financial analysis to small businesses, entrepreneurs and young managers, especially the significance of financial ratios.

What is financial ratio analysis?

Financial ratio analysis is the selection, evaluation and interpretation of financial data in easier to understand ratios, which have been identified as critical indicators of financial performance of the business and can be used for strategy and decision-making. Financial ratio analysis is popularly used to compare a firm’s financial performance over a period of time (trend analysis) or to assess performance in comparison to other businesses.

Categories of financial ratios

Financial ratios can be grouped into categories which highlight the various facets of a firm’s financial health and operational efficiency. Some of the categories of ratios are given below:

• Leverage Ratios disclose to what extent debt is used in a firm’s capital structure.
• Liquidity Ratios present a firm’s short term financial situation or solvency.
• Operational Ratios present a firm’s operational efficiency & asset utilization.
• Profitability Ratios indicate the return on sales and capital employed.
• Solvency Ratios measure a firm’s ability to generate cash flow and honor its financial obligations.


New Post 10/20/2009 5:02 PM
User is offline Tom Miller, CSPO
45 posts
8th Level Poster

Re: Financial ratio analysis 

The trick is not in getting the calculations done.  It is locating/research compariable cohorts of companies to see how your numbers compare. 

What is "pretty good/ average" in one industry (100% turn over of drivers / year in land transporation) is horrible in another (3%? turnover in government).


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