Financial Ratio Analysis: Goals, Reliability, Efficiency, Leverage and More

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Financial Ratio Analysis: Goals, Reliability, Efficiency, Leverage and More
<a href="https://pixabay.com/users/JESHOOTS/">JESHOOTS</a> / Pixabay

Financial Ratio Analysis Introduction A sustainable business and mission requires effective planning and financial management. Ratio analysis is a useful management tool that will improve your understanding of financial results and trends over time, and provide key indicators of organizational performance. Managers will use ratio analysis to pinpoint strengths and weaknesses from which strategies and initiatives can be formed. Funders may use ratio analysis to measure your results against other organizations or make judgments concerning management effectiveness and mission impact

Financial Ratio Analysis: Goals, Reliability, Efficiency, Leverage and More

o Calculated using reliable, accurate financial information (does your financial information reflect your true cost picture?)
o Calculated consistently from period to period
o Used in comparison to internal benchmarks and goals
o Used in comparison to other companies in your industry
o Viewed both at a single point in time and as an indication of broad trends an dissues over time
o Carefully interpreted in the proper context, considering there are many other important factors and indicators involved in assessing performance.

Ratios can be divided into four major categories:

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o Profitability Sustainability
o Operational Efficiency
o Liquidity
o Leverage (Funding –  Debt, Equity, Grants)

The ratios presented below represent some of the standard ratios used in business practice and are provided as guidelines. Not all these ratios will provide the information you need to support your particular decisions and strategies. You can also develop your own ratios and indicators based on what you consider important and meaningful to your organization and stakeholders.

The Ratios

Profitability Sustainability Ratios

How well is our business performing over a specific period, will your social enterprise have the financial resources to continue serving its constituents tomorrow as well as today?

H/T Oldschool Value

147759770 Financial Ratios for Stocks by ValueWalk.com

 

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