What are the four financial performance ratios?
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What are the four financial performance ratios?
In general, financial ratios can be broken down into four main categories—1) profitability or return on investment; 2) liquidity; 3) leverage, and 4) operating or efficiency—with several specific ratio calculations prescribed within each.
What is the purpose of using financial ratios?
Financial ratios offer entrepreneurs a way to evaluate their company’s performance and compare it other similar businesses in their industry. Ratios measure the relationship between two or more components of financial statements. They are used most effectively when results over several periods are compared.
How do you interpret financial ratios?
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How do you interpret vertical financial statements?
A vertical analysis is used to show the relative sizes of the different accounts on a financial statement. For example, when a vertical analysis is done on an income statement, it will show the top line sales number as 100%, and every other account will show as a percentage of the total sales number.
What are the three main profitability ratios?
The three most common ratios of this type are the net profit margin, operating profit margin and the EBITDA margin.
What are common size financial statements?
A common size income statement is an income statement in which each line item is expressed as a percentage of the value of revenue or sales. Common size financial statements help to analyze and compare a company’s performance over several periods with varying sales figures.
How do you interpret a common size balance sheet?
Common size statements display all line items as percentages of a common base line item figure. So, for example, on a balance sheet asset line items are expressed as a percentage of total assets, while liability and equity line items are expressed as a percentage of total liabilities and shareholders’ equity.
