Financial Ratio Analysis with Excel Model

FINANCIAL RATIOS ANALYSIS



Working with financial information can be overwhelming if information is not dissected and positioned

in an easy to use metric measurement which gauges the performance of the company. Financial ratios

provide the users with metric performance measurements to understand the business trend over and

create a comparison standard to the competitors and the industry. Using financial ratios for comparison

along the industry and among different firms necessitate understanding the ration calculations; in some

instances the computation method has to be harmonized to arrive at fair judgment on firm performance

in comparison to the industry. The application and interpretation will be same among different firms,

but ratios computations are influenced by how the inputs from the financial statements are determined.

A ratio might have been calculated using average amount of the balance sheet item while the same ratio

for a different firm might have calculated using the end of the year balance sheet amount.



A liquidity ratio as the name indicates measures how well the company position is placed to meet the

coming up obligations and without impending operations. The ratio is measured in coverage times and it

is calculated as current assets divided by current liabilities, the higher the coverage time the favorable

the ratio and the more liquid the company. A low coverage rate instigate rising a red flag, because this

might be an indication the company will be running into trouble of sustaining the operations and paying

the due liabilities. There are different degrees of liquid ratios used to gage the company liquidity, quick

ratio and cash ratios have a high degree as they bot