Financial Ratios – Core factor to Analyse financial statement
Financial Ratios – Core factor to Analyse financial statement, It has been said that not only the finance manager should have the knowledge of reading.
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Financial Ratios – Core factor to Analyse financial statement, It has been said that not only the finance manager should have the knowledge of reading the balance sheet but should also have the way to know the exact position of the company in terms of figures. The ratios are the one which describes the position of the company in various figures. Through which the person can take many crucial decisions for the better development of the company. There are various ratios which are required to be learnt by every individual which is aiming to take future as finance manager. The whole scenario is elaborated here.Financial Ratio is the ratio which is arrived with the mathematical comparison between the two terms which would indicate the performance of the company. There are many ratios. We would start learning one by one:Must Read -This ratio shows the company capabilities to which the liabilities support the companies assets. This is expressed as follows – Debt/AssetsThis ratios indicate the companies ability that how efficiently the Assets are employed in the company. There are many turnover ratios, which are explained here.How efficiently the fixed assets are employed. It is expressed – Revenue from Operations/Average Net Fixed Assets.
What is meant by Financial Ratio?
1. Liquidity Ratios –Liquidity ratios indicate that how fast the company can convert its assets into the cash. It is the ability of the company to meet its debt in the short run. The various liquid ratios are as under:
(a) Current Ratio:This Ratios indicates the companies capability to meet its current/short term liabilities. Higher the ratio indicates the firms have high solvency ratio. The current ratio is expressed as follows – Current ratio – Current Assets/Current Liabilities
(b) Quick Ratio:This ratio indicates the further bifurcation of the current ratio, which means the ratio takes into the account the assets which are the most liquid, which would cash the money if they are sold in the market. It is expressed as follows – Quick Assets / Current Liabilities ( Quick Assets means Current Assets excluding Inventories )
(c) Cash Ratio:It further bifurcates the quick ratio by taking only the cash or cash equivalents which can render the cash immediately. It is expressed as follows – Cash + Cash equivalents + Current Investments / Current Liabilities
- How to Read or Analyse a Balance Sheet
- Internal Rate of Return – Intro, Advantages & Disadvantages
- Net Present Value (NPV) – Meaning & Calculation