Major Categories of Financial Ratios4 Major Categories of Financial Ratios

 

Financial Ratios are used for evaluating several financial facts and figures concerning a particular company or an industry. Usually, financial ratios are used as a tool for comparing different companies and industries in several aspects. These financial aspects include profitability, dividends paid, book value and many others. In the case of a company, a ratio evaluation is based on a current share price or in the overall market value (capitalization). The market value of a company is computed by multiplying the current share price to the total number of shares outstanding (number of shares x share price). 

Major Ratio Categories

 

1) Balance Sheet RatiosMeasuring Financial Stability

Balance sheet ratios deriving from a company’s balance sheet and mainly deal with the financial stability of a company over time. The most important Balance Sheet Ratios are:

i) Debt-Equity Ratio

It values the debt exposure of a company by measuring the correlation between the company’s liabilities (debt) to what the shareholders have invested in the past in form of capital (equity).

 

ii) Current Ratio

It values the ability of a company to meet its short-term obligations deriving from its liabilities. The current ratio is formulated by dividing Currents Assets to Current Liabilities. The higher the Current Ratio is -the higher is the ability of the company to pay off its current and future liabilities.

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18 March 2019
17 March 2019
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