FIN 571 Interpreting Financial Ratios

Financial Ratios

Financial ratios are useful indicators of a firm's performance and financial situation. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms.

Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used:

1. Liquidity ratios

2. Activity ratios

3. Debt management ratios

4. Profitability ratios

5. Market value ratios

6. LIQUIDITY RATIOS

Liquidity ratios are the first ones to come in the picture. These ratios actually show the relationship of a firm's cash and other current assets to its current liabilities. Two ratios are discussed under Liquidity ratios. They are:

i. Net Working Capital

ii. Current ratio

iii. Quick/...