Comany

Key ratios

I.   Purposes and Considerations of Ratios and Ratio Analysis

II. Types of Ratios

III. Income Ratios

IV. Profitability Ratios

V. Net Operating Profit Ratios

VI. Liquidity Ratios

VII. Working Capital Ratios

VIII. Bankruptcy Ratios

IX. Long-Term Analysis

X. Coverage Ratios

XI. Total Coverage Ratios

XII. Leverage Ratios

XIII. Common-Size Statement

XIV. Resources

I. Purposes and Considerations of Ratios and Ratio Analysis

Ratios are highly important profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial structure, reordering, leverage, and interest coverage. Although ratios report mostly on past performances, they can be predictive too, and provide lead indications of potential problem areas.

Ratio analysis is primarily used to compare a company's financial figures over a period of time, a method sometimes called trend analysis. Through trend analysis, you can identify trends, good and bad, and adjust your business practices accordingly. You can also see how your ratios stack up against other businesses, both in and out of your industry.

There are several considerations you must be aware of when comparing ratios from one financial period to another or when comparing the financial ratios of two or more companies.

* If you are making a comparative analysis of a company's financial statements over a certain period of time, make an appropriate allowance for any changes in accounting policies that occurred during the same time span.

* When comparing your business with others in your industry, allow for any material differences in accounting policies between your company and industry norms.

* When comparing ratios from various fiscal periods or companies, inquire about the types of accounting policies used. Different accounting methods can result in a wide variety of reported figures.

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