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# Financial Ratios Analysis

Financial ratios analysis is the most often used financial analysis tool. Financial ratio analysis means developing relationship between various values from financial statement such that it provides a better insight about the company.

As part of Financial Ratios, let us look at 5 imporant ratio types.

Click on each ratios to learn their meaning, formula along with examples, interpretation and real life application

To understand more about Financial Ratios, explore below resources as well.

# Solvency Ratios

Solvency ratios indicates the company’s ability to meet its long term liabilities like long term borrowings. It examines the company’s capital structure to determine if the company is over burdened with debt such such that its very  solvency is at question.

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# Liquidity Ratios

Liquidity ratios indicate about the ability of company to meet its short term obligations using only its currents assets. These ratios help in understanding if the company can withstand any short term liquidity problems.

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# Activity Ratios

Activity ratios indicate how efficient is the company in utilizing the resources. It helps in understanding how good is the company in generating revenue using resources like Receivables, Inventory, Fixed Assets etc.

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# Profitability Ratios

Profitability ratiois indicate the ability of the company to generate sufficient profits from its operations. Analyzing profitability ratios helps in understanding the sustainability of the company. These ratios help in understanding if the company has superior pricing power or robust cost control mechanism.

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# Valuation Ratios

Valuation ratios help in undetstanding the intrensic value of the company. These are also called as “market price based ratios” since they use market price of the company’s stock. Valuation ratios often help in knowing if the company’s stock price is overpriced or underpriced, both in absolute sense and in relative sense.

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