Answer to Question #2471 in Finance for Anne

Question

I am trying to understand what a financial ratio shows.

It's the ratio "Interest cost as a percentage of sales = interest expense/sales"

Can you explain what this shows for a company.

Thank you

Answer 1

Financial ratios identify the financial strengths and weaknesses of the company.
Interest cost as a percentage of sales is a profitability ratio that shows a
company's overall efficiency and performance. Interest cost as a percentage of
sales depends on interest rates and net revenues of companies. Interest Expense
ratio reflects the costs of a company's borrowings. Sometimes companies record a
net figure here for interest expense and interest income from invested funds.