# Financial Ratios

## Methods to Evaluate the Performance and Financial Strength of a Company

You as a financial consultant have been asked to evaluate the performance and financial strength of Deluxe Trading Co for the two years. For performance…

## Introduction to Financial Ratio Analysis

Definition and Explanation of Accounting Ratio Analysis (Financial Ratio Analysis): We have so far been concerned with the preparation of financial statements without any examination…

## Analysis of Financial Statement of a Business

Analysis of Financial Statement by the Use of Solved Example of Financial Ratios: John Brown is running a business which manufactures nuts and bolts which…

## Preparation of Income Statement and Balance Sheet with the help of Financial Ratios

Sometimes examination questions may require the candidates to prepare financial statements with the help of a given set of financial ratios. In these cases at…

## Limitations of Ratio Analysis

Financial ratio analysis faces some limitations, which are given below: (1) Ratio analysis requires a proper comparison i.e., one ratio its own is of no…

## Uses of Financial Ratio Analysis

Financial ratio analysis helps a business in a number of ways. The importance and advantages of financial ratios are given below: (i) Ratios help in…

## Liquid Ratio

Liquid Ratio or Acid Test Ratio or Quick Ratio – Definition, Explanation and Use: Current ratio (which takes all current assets into account) may give…

## Current Ratio

Current Ratio or Working Capital Ratio – Definition, Explanation and Use: The current or working capital ratio is determined by dividing the total current assets…

## Liquidity Ratios

Definition, Explanation and Use: Liquidity ratios determine the ability of a business to finance, its day to day operations, or in other words, to pay…

## Non Current Asset Turnover

Definition, Explanation and Use: Non-current asset turnover ratio determines the efficiency with which a business uses its non-current assets to generate revenue for the business….

Definition, Explanation and Use: The trade payables’ payment period ratio represents the time lag between a credit purchase and making payment to the supplier. As…

Definition, Explanation and Use: The trade receivables’ collection period ratio represents the time lag between a credit sale and receiving payment from the customer. As…

## Inventory Turnover Ratio

Definition, Explanation and Use: Inventory turnover ratio is often linked with the measurement of profitability. Though this ratio does not in itself measure profitability, but…

## Activity Ratios

Activity Ratios or Turnover Ratios – Definition,  Explanation and Use: The activity ratios or turnover ratios (which are sometimes referred to as efficiency ratios or…

## Return on Equity

Return on Equity (ROE) Ratio – Definition, Explanation and Use: Return on equity ratio (ROE) is one of the most widely used financial ratio. This…

## Return on Capital Employed

Definition, Explanation and Use of ROCE Ratio: Return on capital employed (ROCE) ratio is used to determine the returns that a company is generating from…

## Return on Assets

Definition, Explanation and Use of Return on Asset Ratio: The return on assets percentage determines the performance of business’ assets in terms of profitability. This…

## Operating Expenses Ratio

Definition and Explanation: Operating expenses ratio shows operating expenses as a percentage of sales. Operating expenses relate to the operations of a business entity. In other…

## Net Profit Ratio

Net Profit Ratio or Net Profit Margin or Operating Profit Ratio – Definition and Explanation: The net profit ratio (net profit margin or operating profit)…

## Gross Profit Ratio

Gross Profit (GP) Ratio or Gross Profit Margin – Definition and Explanation: Gross profit ratio (GP ratio or gross profit margin) tells us how much…

## Profitability Ratios

Profit is as essential for a business as blood for life of a human being. A business running in continuous losses finds it dubious to…