What Is Financial Ratio Analysis?

Financial ratio analysis

Generally speaking, the relationship between risk and return is measured by three aspects of competence: ^[2]

Calculation and understanding of major financial ratios:

Below, we still use ABC's

For listed companies, because the stocks they issue have price data, an important ratio is generally calculated, which is the price-earnings ratio. Price-earnings ratio = price per stock market /

In practice, we may be more concerned about the future profitability of the enterprise, that is, growth. Good-growth companies have broader development prospects and are therefore more attractive to investors. Generally speaking, companies can predict their future growth prospects through the growth rates of sales revenue, sales profit, and net profit in the past few years.

(1) The items to be analyzed must be comparable and relevant, and it is meaningless to compare unrelated items;

(2) The consistency of the comparison caliber, that is, the numerator and denominator terms of the ratio must be consistent in caliber in terms of time and range;

(3) The selection criteria must be scientific and pay attention to factors such as industry factors and differences in production and operation conditions;

(4) Pay attention to organically linking the various ratios for a comprehensive analysis. Do not look at one or a certain type of ratio in isolation, and combine other analysis methods. Understand and achieve the purpose of financial analysis. ^[2]

In financial analysis, ratio analysis is the most widely used, but it also has limitations. The outstanding performance is that ratio analysis is a static analysis and it is not absolutely reasonable and reliable for predicting the future. The data used in the ratio analysis is the book value, which is difficult to reflect the impact of price levels. It can be seen that when using ratio analysis,

First, pay attention to organically linking the various ratios for a comprehensive analysis. Do not look at one or each ratio separately, otherwise it will be difficult to accurately judge the overall situation of the company;

The second is to pay attention to reviewing the nature and actual situation of the company, not just focusing on financial statements;

The third is to pay attention to the analysis of the difference, so as to have a detailed analysis and understanding of the company's history, current situation and future, to achieve the purpose of financial analysis. ^[2]