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Ratios can help a user interpret a financial health of a company.

Most common financial ratios are:

Inventory Turnover Ratio: COGS/Average Inventory Value

Measures how quickly a company sells its products. A ratio over 1 meaning inventory is selling fast.

Quick Ratio: Current Assets/Current Liabilities

Measures ability of a company to meet its short term obligations. A ratio over 1 implies that the company can meet its current obligations.

Debt to Equity Ratio: Current Debt/Current Equity

Measures how much debt is used to finance a company. A ratio over 1 shows that company uses more debt than equity to finance its operations.

Inventory Turnover Ratio: Net Credit Sales/Average Accounts Receivable

Measures how effective a company collecting money on a credit that it has extended to customers. A ratio under 1 shows that the company is not efficient at collecting the debt it extends.

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