Question

list the major financial ratio groups and briefly indicate what they analyze.

Answer 1

1. Activity ratios: measure how efficiently a company performs day-to-day tasks, such as the collection of receivables and management of inventory. Example Inventory turnover, Days of sales outstanding

2. Liquidity: measure the company’s ability to meet its short-term obligations. Current ratio, Quick ratio

3. Solvency: measure a company’s ability to meet long-term obligations. Subsets of these ratios are also known as “leverage” and “long-term debt” ratios.

4. Profitability ratios: measure the company’s ability to generate profits from its resources (assets).example net profit margin, gross profit margin,operating profit margin

5. Valuation ratios: measure the quantity of an asset or flow (e.g., earnings) associated with ownership of a specified claim (e.g., a share or ownership of the enterprise).example Price to earning, price to book value