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Financial ratios are used by businesses and analysts to determine how a company is
financed. Ratios are also used to determine profitability, liquidity, and solvency.
Liquidity is the firm's ability to pay off short term debts, and solvency is the ability
to pay off long term debts.
Commonly used financial ratios can be divided into the following five categories.
Turnover ratios-
Sometimes called asset efficiency ratios, turnover ratios measure how efficiently a
business is using its assets. This ratio uses the information found on both the
income statement and the balance sheet.
Profitability ratio-
These are ratios that measure if a business' activities are profitable. Frequently used
ratios are the net profit ratio and the contribution margin ratio.
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20
15
10
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2019 2018 2017 2016 2015
25
20
15
10
0
2019 2018 2017 2016 2015