Question

Discuss the operating indicators used to analyze the financial performance of an organization.

Answer 1

There are various indicators which are used to measure the financial performance of an organization, some of the operating indicators are like profitability ratios, solvency ratio, liquidity ratio, asset management ratio etc. Under each head there are various measures that are used some of them are as follows:

Profitability ratios - Profitability ratios are used to find out the operating performance of the company. various profitability ratios are used like gross profit ratio, operating profit ratio, net profit ratio, return on total assets, return on shareholders equity etc.

Liquidity ratios - Liquidity ratios are used for measuring the short term solvency of the company. various liquidity measures like current ratio, quick ratio, cash ratio are used to measure the performance on aspects of short term solvency

Solvency ratio - It is used to measure the solvency of the company. Performance on solvency aspects are measured by debt equity ratio, equity multiplier, debt ratio etc.

Asset management ratio - This type of ratio measures the the utilization of assets in the organization. various asset management ratios are total asset turnover ratio, fixed asset turnover, receivable turnover ratio, inventory turnover ratio

So all these types of ratios are taken into consideration when measuring the financial performance of an organization.