What is the financial ratio?

The financial ratio is a metric used to determine the strength or weakness of the company in certain financial areas. Investors and analysts look at financial conditions to compare two or more companies in the same industry or to analyze the performance of the company over time. The financial ratio is sometimes called an accounting ratio.

market ratios are used to valued the company or to determine its value as an investment. The most basic of these is the ratio of price to earnings, also called P/E ratio. This financial ratio is the price per shareholding of the company divided by profit per share. Among other ways to assess the value of the company is the price of the book, which is the price of shares divided by overall assets by minus intangible assets and liabilities; And the price for cash flow, which is the price of shares divided by cash flow per share.

The profit margin is the ratio of profitability, calculated by the division of net income. Operating margins, financial ratio that reflects operating effects, counts on the division of operating income by net salesmay. The gross margin is the ratio of profitability calculated as income minus the cost of sold goods, divided income. This is expressed as a percentage and measures how much money the company has left after paying materials used in goods that produce.

liquidity ratios show the ratio of assets that can be quickly transferred to cash for debt repayment. The current ratio is a basic liquidity ratio that shows how well the society can cover short -term obligations. This is the current assets divided by current obligations. For most loan transactions, the ratio of receivables turnover is an important ratio of liquidity that shows how quickly the company collects the money it owes. This ratio is calculated as a net credit sales divided by average receivables.

The activities of the

Activity show how fastaktives the company can be transferred to sale or cash. The ratio of stock turnover, which is an activity ratio,It shows how quickly the company sells its goods. It is calculated as the value of inventory divided by sales sales.

debt ratios include total debt to total assets, which is the widest of these conditions. It is calculated by the division of a short -term debt according to total assets. This ratio shows how many of the company's assets have been paid by borrowed money. The ratio of interest coverage is the debt ratio that shows the ability of the company to repay its debts. This is divided by total interest before interest and taxes (EBIT).

The ratios of capital budgeting are the ratios used by companies to determine the financial feasibility of the proposed project. The pure present value, which is the difference between the current value of the cash and the current value of the cash outflow, is the ratio of the capital budget used for projects creating income. Influence of return Rnal, which is the growth rate, is expected to generate the project often used to compare several differentConsidered projects.

In order to be valuable, the financial ratio should be compared with the same ratio for other companies in the field or for one company over time. No financial ratio will tell the whole story. However, they provide a solid foundation for comparison.