Financial ratio analysis

A method for determining the overall financial condition of a company. It puts the information from a financial statement into perspective, helping to spot financial patterns that may threaten the health of the company. It also gives indications where improvements would be helpful. Lenders like to evaluate risk by using several sets of ratios like ratios of assets to liabilities, and ratios of lender-investor capital to owner-investor capital. Ratios are also helpful for making comparisons between a company and other companies in the industry. Frequently used ratios are Current Ratio, Quick Ratio, Inventory Turnover Ratio, Receivables Turnover Ratio, Average Collections Period, Payables Turnover Ratio Inventory to Net Working Capital, Debt to Equity Ratio, Return on Assets (ROA) Ratio, Gross Profit Margin Ratio and Return on Sales Ratio.