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Four Key Financial Ratios

Managers rely on financial ratio analysis when making decisions. What are the four key ratios? What information does each provide?

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Hi there,

I have answered your question through a discussion of the 4 groups of ratios. While each group may have more than one ratio, I have also discussed one ratio from each group.

Financial Ratios
There are 4 groups of Financial Ratios as follows:
1. Liquidity
2. Solvency
3. Profitability
4. Efficiency

1. Liquidity
The most common liquidity ratio is the current ratio, which is the ratio of current assets to current liabilities. This ratio indicates a company's ability to pay its short-term bills. A ratio of greater than one is usually a minimum because anything less than one means the company has more liabilities than assets. A high ratio indicates more of a safety cushion, which increases flexibility because some of ...

Solution Summary

Definition of the four key financial ratios: Liquidity, Solvency, Profitability and Efficiency, with sources of information.