Archive about 'Interpretation of Financial Statements'

Profitability Ratio:Gross Profit Margin

Continued from my last article, we now look at the financial ratio for assessing the profitability of a company.
This type of financial ratio should be able to measure the bottom-line results or the profitability of the company.
One typical major Profitability ratio is:

The GROSS PROFIT MARGIN

FORMULA

Gross Profit / Net Sales

MEASURE WHAT

Profitability of trading and mark-up

SCORE [...]

Liquidity Ratio: Current Ratio

Liquidity means the firm’s ability to satisfy its short-term obligations as they come due.

One of the common financial ratio is the

The CURRENT  Ratio.

FORMULA

Current Assets /Current Liabilities

MEASURE WHAT

Measure the ability of the company to meet short term obligations namely paying the current liabilities like accounts payable and others. A test of solvency / a [...]

Liquidity Ratio: Quick (Acid-Test) Ratio

Liquidity means the firm’s ability to satisfy its short-term obligations as they come due.

In my earlier article, we have discussed the Current Asset Ratio. Another common financial ratio to measure the liquidity of the company is :

The QUICK (ACID-TEST) RATIO:

FORMULA

Current Assets minus Inventories/Current Liabilities

MEASURE WHAT

Measure the ability to pay urgent liabilities, a MORE stringent [...]

Ratio Analysis: Frequently Asked Questions

QUESTION NO 1: WHAT REALLY IS RATIO ANALYSIS?

Ratio analysis involves methods of calculating and interpreting financial ratios to assess a firm’s financial condition and performance.

QUESTION NO 2: WHO IS INTERESTED IN RATIO ANALYSIS?

Since it’s able to assess a firm’s financial condition and performance, hence it is of Interest to all users group as narrated in [...]