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Financial Ratios – Homework Help

Financial ratios are factors that firm owners need to consider in determining the financial status of the firm. They help you to gauge the status, efficiency, profitability, competitive ability and the quality of a business from a wide range of perspectives. They include;

  1. Liquidity or solvency ratios. These ratios help in knowing the amount of funds owned by the firm. It is often done by drawing a line between assets and liabilities. They are also useful in evaluation of the firm’s ability to pay off its short term debts, pay its bills and staff. Liquidity is not to be underestimated as lack of it has caused even highly profitable firms to go bankrupt (Joshua, 2019)
  2. Debt or financial leverage ratios. They mainly concentrate on the firm’s ability to pay long-term debts. They also allow for potential risk and benefit evaluation and the analysis of the competitive ability of the firm compared to other firms in the same sector.
  3. Asset turnover or Efficiency ratios. They focus on the efficiency at which the firm uses assets to produce sales, in other words, cash conversion cycle in pursuit for profit (Büyüközkan et al., 2015). Are useful in showing how a firm runs from a dynamic point of view. Firms that are more effective spend less while making more.
  4. Profitability ratios. These highlight the ability of a firm to make profits. They show how well a firm manages resources in an attempt to achieve high profitability. A firm with high returns of capital has a better chance of thriving because it is much more profitable compared to a shareholders` contributed investment (Joshua, 2019).
  5. Market value ratios. These show the market value of a publicly held firm. They include price, book value and dividend yield of the firm.

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Financial Ratios – Homework Help . (2022, March 10). Essay Writing . Retrieved February 21, 2024, from https://www.essay-writing.com/samples/financial-ratios/
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Financial Ratios – Homework Help [Internet]. Essay Writing . 2022 Mar 10 [cited 2024 Feb 21]. Available from: https://www.essay-writing.com/samples/financial-ratios/
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