Financial ratios

Welcome to today's session on financial ratios. Financial ratios are invaluable tools for analyzing a company's financial health and performance. Whether you are a manager, investor or employee, wishing to understand the organization, ratios help transform raw financial data into actionable insights. By comparing figures from the balance sheet and income statement, ratios reveal relationships between sales, profits, debt, and assets. Their true power is in tracking changes over time or benchmarking against industry peers. Session, we will explore the different categories of financial ratios and what they reveal about a business. Financial ratios are grouped into key categories, liquidity ratios, profitability ratios, leverage or solvency ratios, and efficiency ratios. Liquidity ratios, like the current and quick ratios, show if a firm can meet short term obligations. Profitability ratios, such as return on assets and net profit margin, indicate how well a company converts sales into profits. Leverage ratios like debt to equity, assess how operations are financed. Efficiency ratios like inventory turnover show resource management. Each category offers a unique financial perspective. A common misconception is seeing a single ratio as an absolute measure of success or failure. However, ratios need context, comparing them to industry averages, company history, or competitors is essential for meaningful analysis.