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Analyzing Financial Statements > Overview of Ratio Analysis
Overview of Ratio Analysis
• Classification
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Analyzing Financial Statements > Overview of Ratio Analysis
Classification
• Ratio analysis consists of the calculation of ratios from financial statements and is
a foundation of financial analysis.
• A financial ratio, or accounting ratio, shows the relative magnitude of selected
numerical values taken from those financial statements.
• The numbers contained in financial statements need to be put into context so that
investors can better understand different aspects of the company's operations.
Ratio analysis is one method an investor can use to gain that understanding.
Business analysis and profitability
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Appendix
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Analyzing Financial Statements
Key terms
• liquidity Availability of cash over short term: ability to service short-term debt.
• ratio A number representing a comparison between two things.
• ratio analysis the use of quantitative techniques on values taken from an enterprise's financial statements
• shareholder One who owns shares of stock.
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Analyzing Financial Statements
Business analysis and profitability
Financial ratio analysis allows an observer to put the data provided by a company in context. This allows the observer to gauge the strength of different
aspects of the company's operations.
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Pixabay. "Achievement, Bar, Business, Chart - Free image - 18134." Public domain http://pixabay.com/en/achievement-bar-business-chart-18134/ View on
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Analyzing Financial Statements
Which of the following is NOT a correct definition of a basic type
of financial ratios?
A) Liquidity ratios measure the availability of cash to pay debt.
B) Activity ratios are concerned with shareholder audiences.
C) Debt ratios measure the firm's ability to pay long-term debt.
D) Profitability ratios measure the firm's use of its assets to generate an
acceptable rate of return.
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Analyzing Financial Statements
Which of the following is NOT a correct definition of a basic type
of financial ratios?
A) Liquidity ratios measure the availability of cash to pay debt.
B) Activity ratios are concerned with shareholder audiences.
C) Debt ratios measure the firm's ability to pay long-term debt.
D) Profitability ratios measure the firm's use of its assets to generate an
acceptable rate of return.
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Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/
Analyzing Financial Statements
Attribution
• Wikibooks. "Principles of Finance/History." CC BY-SA 3.0
http://en.wikibooks.org/wiki/Principles_of_Finance/History#Ratio_Analysis
• Wikipedia. "Financial statement analysis." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Financial_statement_analysis
• Wikipedia. "Financial ratios." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Financial_ratios
• Wikipedia. "Financial ratio." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Financial_ratio
• Wiktionary. "shareholder." CC BY-SA 3.0 http://en.wiktionary.org/wiki/shareholder
• Wiktionary. "liquidity." CC BY-SA 3.0 http://en.wiktionary.org/wiki/liquidity
• Wiktionary. "ratio." CC BY-SA 3.0 http://en.wiktionary.org/wiki/ratio
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