Standard Financial Ratios by Category

 

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Introduction

For the purposes of this presentation, ratios will be grouped into main categories. They all serve to use quantitative data to make qualitative assessments.

 

Liquidity

Liquidity ratios are used to evaluate how well a company is able to meet its short-term financial obligations.

Profitability

Profitability ratios are used to identify the level and quality of earnings.

 

Debt or Solvency

Debt or Solvency ratios give insight into financial leverage and ability to meet long-term debt obligations.

 

Operating Performance

Operating Performance ratios identify aspects of operations and efficiency, and insight into the timing of cash inflows and outflows.

 

Cash Flow

Cash Flow ratios identify relative cash positions.

 

Valuation

Valuation ratios are concerned with identifying company valuation mostly from an investment perspective.

 

Industry Specific

Ratios that provide information specific to certain industries that may not apply to all businesses.

 

Summary

The groupings are designed to be useful, but should not limit the use of a ratio that may provide information across two categories, such as both solvency and operating performance.

 

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