Search

Ratios

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.