Financial ratio analysis is a method of using the data in the financial statements to calculate various ratios to evaluate the financial status and operating performance of an enterprise. Financial ratio analysis can classify and interpret the financial data of a business from different angles and purposes for comparison and judgment. In general, financial ratio analysis can be divided into the following four broad categories:
Financial Structure Ratio. The financial structure ratio refers to the ratio that reflects the composition and proportion of the assets, liabilities and equity of an enterprise, and is mainly used to evaluate the capital structure and financial leverage of an enterprise. Commonly used financial structure ratios include debt-to-asset ratio, equity multiplier, long-term capital ratio, etc.
Solvency ratio. The solvency ratio refers to the ratio that reflects the ability and level of an enterprise to repay its debts, and is mainly used to evaluate the liquidity and safety of an enterprise. Commonly used solvency ratios include current ratio, quick ratio, interest coverage ratio, debt service coverage ratio, etc.
Profitability ratio. The profitability ratio refers to the ratio that reflects the ability and efficiency of an enterprise to achieve profits, and is mainly used to evaluate the operating effect and profitability of an enterprise. Commonly used profitability ratios include gross profit margin, net profit margin, return on assets, return on equity, etc.
Market Value Ratio. The market value ratio refers to the ratio that reflects the value and evaluation of the enterprise in the market, and is mainly used to evaluate the growth and investment attractiveness of the enterprise. Commonly used market value ratios are price-to-earnings ratio, price-to-book ratio, price-to-sales ratio, price-to-sales ratio, price-to-spot ratio, etc.
These are the four categories of financial ratio analysis, each with different calculation formulas and analysis methods, which need to be selected and applied according to specific financial data and purposes. Financial ratio analysis is an effective financial analysis tool, which can help enterprises and investors understand the financial status and operating performance of enterprises, and provide basis and reference for decision-making.