FINANCIAL RATIO ANALYSIS Definition

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FINANCIAL RATIO ANALYSIS is: a. an easy and valuable way to interpret and understand the numbers found in your financial statements. Understanding the relationships between the numbers can help you answer critical questions about your business -- and if you monitor the ratios on a regular basis youll gain insight into how effectively you are managing your business. And: b. lenders also like to evaluate risk by using several sets of ratios; ratios of assets to liabilities, and ratios of lender-investor dollars to owner-investor dollars. Recognize that ratios are indicators and that only you can tell the full story about your business. So the more adept you are at explaining your financial ratios to your investor/lender, the better she/he will understand your business as he/she makes a investment/credit decision.

Learn new Accounting Terms

UNIDENTIFIED CASH RECEIPTS is normally a temporary holding (suspense) account in which funds received but not yet identified as to which account receivable the amount should be properly assigned to are posted.

DEBT MANAGEMENT RATIO examine the degree to which a firm uses debt financing or financial leverages.

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