Articles on Ratio Analysis

What is Ratio Analysis ?

Financial statements can be very difficult to analyze. Ratio analysis is a method used for analysis of financial statements. Lets understand the concept of ratio analysis in detail.

Techniques Used in Ratio Analysis

Ratio analysis involves analyzing the finanical position of an organization based on some calculations. The article discusses some of the most common techniques used in ratio analysis.

Different Users of Ratio Analysis

There is a wide variety of financial ratios available. All these ratios are used by several users. Lets understand the importance of different ratios to different user groups.

Limitations of Ratio Analysis

Though Ratio analysis is one of the most important tools of financial analysis, but it has its own limitations. The article discusses in detail about the limitations of ratio analysis.

Capital Structure Ratio

Capital structure ratios are very important for analysis of the financial statements. Lets understand the need and importance of capital structure ratios in detail.

Debt to Equity Ratio

The debt to equity ratio is the most important of all capital adequacy ratios. Lets discuss in detail about the formula, assumptions and interpretation of the Debt to Equity Ratio.

Debt Ratio

The debt ratio provides an in-depth information about the capital structure and solvency an organization. Lets understand the debt ratio in detail.

Equity to Fixed Assets Ratio

The Equity to Fixed Assets Ratio shows the relative exposure of shareholders and debt holders to the fixed assets of the firm. Lets discuss in detail about the formula, assumptions and interpretation of the equity to fixed assets ratio.

Proprietary Ratio

The proprietary ratio is the inverse of debt ratio and is not very widely used. Lets understand the formula, assumptions and interpretation of proprietary ratio.

Interest Coverage Ratio

The interest coverage ratio is very useful for the creditors of the organization. Interest Coverage Ratio tells the creditors about the safety of their investments and the chances of getting back the principal and interest on time.

Degree of Financial Leverage Ratio

The financial leverage helps to increase profits. Lets discuss in detail about the formula, assumptions and interpretation of the degree of financial leverage ratio.

Degree of Operating Leverage Ratio

The degree of operating leverage ratio of any organization is very important for an investor. Lets understand the degree of operating leverage ratio in detail with the help of an example.

Degree of Combined Leverage Ratio

Most firms use both operating leverage and capital leverage to some extent. The degree to which a company uses operating leverage and financial leverage can be different. Lets learn more about degree of combined leverage ratio in detail.

Introduction to Cash Flow Ratios

Cash Flow Ratios are very important and form the backbone of any financial analysis. Lets understand more about cash flow ratios in detail.

Cash Flow to Debt Ratio

The cash flow to debt ratio tells us that how much cash flow the company generated from its regular operating activities as compared to its debt. Lets learn more about Cash Flow to Debt Ratio in detail.

Free Cash Flow to Operating Cash Flow

The free cash flow to operating cash flow ratio compares the two measures of cash flows. Lets learn more about the free cash flow to operating cash flow ratio in detail.

Operating Cash Flow to Sales Ratio

The Formula Operating Cash Flow to Sales Ratio is (Operating Cash Flow / Sales). Lets learn more about the operating cash flow to sales ratio in detail.

Market Related Ratios

Market related ratios compare the stock price of the company to various balance sheet, income statement and cash flow items. Lets understand in detail about the importance of market related ratios.

Price to Earnings (PE) Ratio

The price to earnings or PE ratio is the one of the most important market related ratio. Lets discuss in detail about the formula, assumptions and interpretation of the price to earnings (PE) ratio.

Price Earnings Growth (PEG) Ratio

The Price Earnings Growth (PEG) Ratio is a variation of Price to Earnings Ratio. The PEG Ratio also takes into account the growth rate of the company.

Price to Book Value Ratio

The price to book value ratio looks at an immediate liquidation scenario of an organization. Lets discuss more about the formula, assumptions and interpretation of Price to Book Value Ratio.

Price to Cash Flow Ratio

The price to cash flow ratio provides a shortcut for finding companies that have been undervalued in comparison to their cash flows. Lets discuss more about the formula, assumptions and interpretation of price to cash flow ratio.

Price to Sales Ratio

The price to sales ratio tells an investor how many dollars they are paying for every dollar that the company has in sales. Lets discuss more about the formula, assumptions and interpretation of price to sales ratio.

Dividend Yield Ratio

The dividend yield ratio is useful for a value investor who invests in a company in order to get returns in the form of dividends. Lets learn more about the formula, assumptions and interpretation of the dividend yield ratio.

Put Call Ratio

Put and call are derivative options. Put call ratio compares what investors plan to do with a given stock or an index at a later date. The article discusses in detail about the formula, variations and interpretation of put call ratio.

Introduction to Liquidity Ratios

Liquidity ratios helps analysts predict the short term solvency of the firm. Short term is a period of 1 year. The article discusses in detail about the liquidity ratios.

Current Ratio

The current ratio is the most popularly used metric to gauge the short term solvency of a company. The article discusses in detail about the formula, meaning, assumptions and interpretations of current ratio.

Quick Ratio

The quick ratio is a variation of the current ratio and is to be more conservative estimate than the current ratio. The article discusses in detail about the formula, assumptions and interpretations of quick ratio.

Cash Ratio

Cash ratio is used under circumstances when the company is not able to meet its short term obligations by liquidating its inventory and receivables. The article discusses in detail about the formula and assumptions for calculating the cash ratio.

What is Negative Working Capital ?

Negative Working Capital is when a company has more current liabilities than its current assets. This article discusses in detail the concept of Negative Working Capital.

Introduction to Turnover Ratios

Turnover ratios are a very important class of ratios. The Turnover ratios provide an early clue about the efficiency of a firm. Lets understand in detail about the turnover ratios.

Accounts Receivable Turnover Ratio

The accounts receivables ratio is a good indicator of the bargaining power that a firm has amongst its buyers. The article discusses in detail about the formula, meaning and interpretations of accounts receivable turnover ratio.

Accounts Payable Turnover Ratio

The Accounts Payable Turnover ratio shows the financing that the firm is able to receive from its vendors and suppliers free of cost. The article discusses in detail about the formula, meaning and interpretations of accounts payable turnover ratio.

How to Use AP Turnover Ratio

Financial ratios are used by a wide variety of people for a wide variety of reasons. Lets discuss how to use accounts payable turnover ratio to bargain with the buyers.

Fixed Asset Turnover Ratio

It is very important for a company to keep a track of whether the investments in fixed assets are performing well and generating adequate revenue and profits. Lets understand the fixed asset turnover ratio in detail.

Inventory Turnover Ratio

A company is said to be more efficient when it keeps the least inventory on hand to make the sales it does. The analysts and investors are always interested in inventory turnover ratio. This article explains the inventory turnover ratio in detail.

Working Capital to Sales Ratio

Working Capital to Sales Ratio also known as - Working Capital Turnover Ratio measures the number of times working capital has been turned over. Lets discuss this ratio in detail.

Introduction to Profitability Ratios

The ultimate aim of any business is to generate profit. Analysts use profitability ratios to find out the true picture of the companys profitability. The article discusses in detail about the profitability ratios.

What are Common Size Statements ?

Common size statements are a way of presenting financial statements that makes them more suitable for analysis. Analysts always use common size statements in conjunction with ratio analysis. Lets understand in detail about the common size statements with the help of an example.

What are Profit Margins ?

Profit and profitability are two different things. The article discusses about the difference between profit and profit margins and explains about profit margins in detail.

Return on Assets (ROA) - Meaning, Formula, Assumptions and Interpretation

Return on Assets (ROA) is a very important metric that is widely used by investors to gauge the profitability of a company. The article discusses in detail about the formula, assumptions and interpretations for calculating the Return on Assets (ROA).

Return on Equity (ROE) - Meaning, Formula, Assumptions and Interpretation

Return on Equity (ROE) is the most important ratio in the financial universe. Every company is driven by profit and Return on Equity (ROE) is considered to be the best indicator of the profitability of a company. The article discusses in detail about the formula, assumptions and interpretations for calculating the Return on Equity (ROE).

Return on Invested Capital (ROIC)

Return on Invested Capital (ROIC) is a popular metric that is widely used in financial analysis. The article discusses in detail about the formula, assumptions and interpretations for calculating the Return on Invested Capital (ROIC)

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