Question

What are the 5 classifications of financial analysis ratios?
Please no handwritten answers.

Answer 1

The five classifications of financial analysis ratios are as follows:

1. Liquidity ratios - These ratios determine a company's ability to pay its short-term liabilities (current liabilities) using its current assets. Examples are current ratio, quick ratio, working capital ratio, etc.

2. Solvency or financial leverage ratios - These ratios determine the extent to which a company is levered and also its ability to meet its long-term liabilities. Examples are debt ratio, debt-to-equity ratio, debt-to-total-assets ratios, etc.

3. Efficiency or asset management ratios - These ratios determine the efficiency with which a company is using its assets to generate revenues. Examples are Total assets turnover ratio, inventory turnover ratio, accounts receivable turnover ratio, etc.

4. Profitability ratios - These ratios determine the efficiency of a company in generating income for the shareholders. Examples are profit margin ratio, return on investment ratio, return on stockholders' equity ratio, etc.

5. Market value ratios - These ratios are used to evaluate the market price of a company. Examples are price/earnings ratio, book value to share value ratio, dividend yield ratio, etc.