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Investment Dictionary


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Financial Ratios

 

Financial ratios are ratios that are used in financial analysis or in other words that are using financial data of a company. Such financial data usually is found in financial statements (income statement, balance sheet or cash flow statement) but some ratios, for example, used for stock valuation may require additional data as stock price or outstanding shares number

 

Each financial ratio has its purpose, but basically all ratios can be classified depending on the analysis intention.

 

Financial ratios for stock valuation:

 

Financial ratios to measure company’s financial stability:

 

Financial ratios to measure profitability of sales:

 

Financial ratios to measure return on assets:

 

Efficiency ratios:

 

Ratios to measure company’s financial liquidity:

 

Ratios applied only for banks or other financial institutions:

 

Financial ratios for investment portfolios:

 

To know which ratio is exactly needed for you, you have to be clear about the purpose of financial ratio. Most of the times, you need to calculate more than one ratio to comprehend the financial situation of the company. Sometime, for example, in case of detailed stock valuation you might need to calculate almost all of the above mentioned ratios. However, to use them correctly some financial experience is needed inevitably.






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