Answer to Question #276134 in Financial Math for Anup

Question

Which financial ratio (at least 5) you will use to analyze the Financial efficiency of an organization and why you will use these ratio (mention your logic)

Answer 1

A financial ratio, or accounting ratio, shows the relative magnitude of selected numerical values taken from those financial statements.

Ratio analysis consists of calculating financial performance using five basic types of ratios: profitability, liquidity, activity, debt, and market.

• Profitability ratios measure the firm’s use of its assets and control of its expenses to generate an acceptable rate of return.
• Liquidity ratios measure the availability of cash to pay debt.
• Activity ratios, also called efficiency ratios, measure the effectiveness of a firm’s use of resources, or assets.
• Debt, or leverage, ratios measure the firm’s ability to repay long-term debt.
• Market ratios are concerned with shareholder audiences. They measure the cost of issuing stock and the relationship between return and the value of an investment in company’s shares.