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Financial Ratio Analysis And Interpretation Services
Do you know what is a ratio analysis and do you conduct the same for your business? If not, you are missing out on meaningful business interpretation. Ratio Analysis refers to comparing different items appearing in the books of accounts or financial statements to give a precise and understandable interpretation. Financial ratio analysis is a way of understanding its health in terms of its liquidity and profitability. One common interest of stakeholders, including the company itself, is to assess how efficiently a company is operating by analyzing revenue, liquidity, and profitability.
A reading of financial statements likely won’t provide all the information necessary for readers, meaning it is necessary to put numbers in a specific format to understand better different aspects of your company’s operations and its health. We at Princeton Consulting can take charge of your accounting needs with advanced skills in ratios analysis. We offer accounting services that identify and calculate ratios in the format you need them. Our accounting experts are prepared to factor in varying ratios to give you an in-depth understanding of your company’s financial performance. We help simplify various aspects of your company that would not be apparent from just looking at the financial statements.
Types of Ratios Analysis:
Profitability Ratios
- Gross Profit Ratio
- Net Profit Ratio
- Operating Profit Ratio
- Return On Capital Employed
Solvency Ratios
- Debt Equity Ratio
- Interest Coverage Ratio
Liquidity Ratios
- Current Ratio
- Quick Ratio
Turnover Ratios
- Fixed Asset Turnover Ratio
- Inventory Turnover Ratio
- Receivable Turnover Ratio
Earning Ratios
- P/E Ratio
- Earnings Per Share
- Return on Net Worth
Profitability ratios:
It compares the company’s ability to earn or generate revenue with its expenses to arrive at the desired return rate and recognize any shortfall. It includes ratios like-
- Gross Profit Ratio
- Operating Profit Ratio
- Net Profit Ratios
- Interest Coverage Ratio
Liquidity ratios:
It measures the ability of a company to pay its day-to-day debt on time. It is a crucial ratio or test to determine its ability to cover short-term obligations and cash flow. It includes the ratios like-
- Current Ratio
- Working Capital Ratio
- Quick Ratios etc.
Return on Investment Ratios:
Return on Investment or Return on Assets measures the amount of return on investment concerning the investment cost. It is a broad measure of investment profitability. It includes the ratios like-
- Return on Equity
- Return on Assets
Efficiency Ratios or Activity Ratio:
It measures how well a company operates its assets to generate income. It also signifies the time a company takes to collect cash from the customer or the time it takes to convert inventory into cash that is making sales. The management, investors, and creditors also use these ratios to assess the profitability of the company’s operation. It includes the ratios like-
- Inventory Turnover Ratio
- Inventory Days
- Accounts Receivable Ratio
- Accounts Receivable Days
- Accounts Payable Ratio
- Accounts Payable Days
- Working Capital Turnover
- Cash Turnover
Solvency Ratios & Leverage Ratios:
These ratios measure the company’s ability to make payments and pay off its long-term obligations to creditors. A balanced solvency & leverage ratios indicate a more creditworthy and financially sound company in the long term. It includes the ratios like-
- Debt to Equity
- Debt to Capital
- Debt to Tangible Net Worth
- Total Liabilities to Equity
- Total Assets to Equity
- Debt to EBITDA
Market Ratios:
These ratios help to understand the economic status of the stock of a particular public traded company. They determine the connection between the price per share of a company and its earnings, growth, and assets, or we can say it helps indicate the value of a company. It includes the Ratios like-
- Dividend Yield
- Earnings Per Share
- Price Earnings Ratio
