# Financial ratio analysis

##### Financial ratios explained! How does financial ratio analysis work? Let’s discuss ten of the most popular financial ratios that can help you find the story behind the numbers.

What do you need to get started on a financial ratio analysis? the overview of how much profit a company made during a year. we will start off with financial ratios that at financial ratios that only focus on the ratios that combine information from the income statement and the balance sheet. putting it into formulas), as well as an artistic companies have nice round

Numbers in their financial statements. each of the cost line items and profit subtotals company a has a gross profit margin of 50%, is 20%-points higher for company a. company so the 20%-point difference (50% versus 30%) net income as percentage of sales (often called a, and 8% for company b. what do we zoom in on for further analysis? this is mainly driven by selling,

General in company a, 10% of revenue in company b. departments like sales, marketing, finance, this could be related to the industry each could company a be overspending in sg&a, or is company b underspending? on the research and development line, company a is spending more than company b. lead to high margin innovative products and services to sell in the future.

The first question that i always ask myself is it likely to be able to pay its bills in the short term? a year) versus the current liabilities (items a useful financial ratio in this area is the for every dollar of current liabilities, there position (from the perspective of business continuity). risky” position (for a supplier that is hoping to get paid). for company

A, this is 150 plus 200 minus 200, in total 150. company b seems to be getting paid by customers the next financial ratio is all about the borrow money to finance operations, or rely the debt-to-equity ratio can help you put that in perspective. you could call this a conservative and robust that helps defend the business continuity for company b, 400 in borrowings, 100

In equity, for every dollar of shareholder capital (equity), a related financial ratio is equity as percentage of the balance sheet total. percentage of total, you could say that company this is where you might see new storylines in analyzing the income statement individually let’s start with a “big picture” financial on the return on equity metric, company b far

Outperforms company a. company b has a much higher financial leverage let’s dig a little deeper into two key subsets of this asset turnover ratio. its average accounts receivable, the ratio 6.67 for company a, 20 for company b. receivables of people, so let’s turn it into a more 55 days for company a, and just 18 days for company b. 5 inventory turns for company a,

10 inventory turns for company b. financial ratios do provide us with clear of a company, and deepen your understanding turnover, inventory turnover financial ratio analysis is as much an art want to learn more about business, finance and accounting?

Transcribed from video
Financial ratio analysis By The Finance Storyteller