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common ratios that are used to analyze financial information

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What are some common ratios that are used to analyze financial information? Which are the most important? What are some examples of how ratios would be used in the decision-making process?

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Common ratios that are used to analyze financial information

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Some common ratios are:

Return on Equity - The DuPont Model
Return on equity, or ROE, is made up of three important components under the DuPont model. Discover how to calculate return on equity using these three components in this article.

Asset Turnover Ratio -
The asset turnover financial ratio calculates the total sales for each dollar of asset a company owns. It measures a company's efficiency in using its assets.

Current Ratio -
The current ratio is one of the most famous of all financial ratios. It serves as a test of a company's financial strength and relative efficiency [i.e., does a company have too much cash on hand or not enough?]

Debt to Equity Ratio -
The debt to equity financial ratio is a measure of the total debt a company owes compared to the equity of the shareholders. It tells you just how much of the capitalization is the owners vs. the creditors.

Gross Profit Margin Ratio -
This financial ratio tends to remain stable over time. Significant fluctuations can be a sign of fraud or financial irregularities.

Gross Profit -
Gross profit is the the total revenue subtracted by the cost of generating that revenue. An investor must know a company's gross profit in order to calculate a financial ratio known as the gross profit margin.

Interest Coverage Ratio -
The interest coverage ratio has huge implications for bond and preferred stock investors in particular. This financial ...

Solution provided by:
Sheetal Jain, PGDM
Education
  • BComm, University of Delhi
  • Post Graduate Diploma in Management (Equivalent to MBA), All India Management Association
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