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Posted by smithmorgan on August 12, 2024 at 1:10pm 0 Comments 0 Likes
There are six categories of financial ratios in ratio analysis
Liquidity Ratios
Liquidity ratios evaluate a company's capacity to repay short-term loans and meet unpredictable financial requirements.
Coverage Ratios
Coverage ratios are used to assess a company's capacity to meet its debt and other commitments. Analysts use the coverage ratios to create a pattern that anticipates the company's financial status in the future over numerous reporting periods. A higher coverage ratio indicates that a company can more easily fulfil its debts and associated responsibilities.
Leverage Ratios
Leverage ratios measure how reliant a company is on debt to fund its operations. The majority of leverage ratios compare assets and liabilities. A high leverage ratio increases a company's risk and exposure to business crises, but it also increases the possibility for larger profits.
Efficiency Ratios
Efficiency ratios assess how successfully the company utilizes its assets and obligations to create profit and sales. It helps to calculate the use of inventories, machinery, liability turnover and equity use. These are significant because the company may generate more sales and profits if the efficiency ratios are improved.
Profitability Ratios
Profitability ratios measure the ability of the company to generate profit compared to its related expenditure. A greater profits ratio demonstrates that the firm is improving financially than the prior financial reporting year. The profitability ratio also determines how lucrative the business is compared to its competing companies.
In case you want more information about accounting ratio analysis, you can consult Whiz Consulting. The experts at Whiz Consulting provide accounting & bookkeeping services such as ratio analysis, project management accounting, accounts reconciliation, and industry-specific accounting. Besides, they provide exemplary accounting service for your business. Visit their website to know more.
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