FINANCIAL RATIOS

FINANCIAL RATIOS

1. Created with the use of numerical values taken from both financial statements to gain meaningful information about the company

   • Let the companies make decisions (Business intelligence)

2. Liquidity, leverage, growth, margins, profitability, efficiency, rates of return, valuation, among others.

   • Used for tracking company performance or make comparative judgements about it.

3. Ratios enable business owners to examine the relationships between items and measure that relationship

   • Simple to calculate, easy to use, and provide business owners with insight into what is happening within the business
     • Are aids of judgement and cannot take place of experience, but experience with regarding ratios and tracking them over time will make any manager a better manager.
       • Can help to pinpoint areas that need attention before the looming problem within the area easily visible

4. NET MARGIN

   • A good margin may vary considerably by industry, the higher the better. How many cents of profit the business has generated for each dollar of sale.

5. PROFITABILITY RATIOS

   • ROS
     • Number of dollars in profit generated during the year from each dollar of sales
   • ROA
     • Number of dollars of sales during the year generated by ach dollar of assets
   • ROE
     • Number of dollars of asset acquiered for each dollar invested by stockholders

6. EFFICIENCY RATIOS

   • RECEIVABLES TURNOVER
     • How many times inventory turned during a year
   • DAYS SALES IN RECEIVABLES
     • Credit sales-days of sales currently collected
   • INVENTORY TURNOVER
     • how many times a company has sold and replaced inventory during a given period
   • DAYS SALES IN INVENTORY (DSI)
     • indicates the average time in days that a company takes to turn its inventory, including goods that are a work in progress, into sales.
   • PAYABLES TURNOVER
     • how quickly a business makes payments to creditors and suppliers that extend lines of credit
   • DAYS SALES IN PAYABLES (DPO)
     • days of credit that the entity takes to pay its debts- invoices

7. ANA TERESA GARAY RODRÍGUEZ // A01701459