Financial Ratios. Explanation of the most important financial ratios for economic evaluations

Seminar paper from the year 2016 in the subject Business economics - Miscellaneous, grade: 1,2, Post University, course: Economics, BWL, Betriebswirtschaftslehre, language: English, abstract: Financial ratios are helpful indicators of a firm¿s performance and financial situation. They are used to analyze trends and compare the company performance over time or to other competitors. Therefore, it is important to have a clear understanding and set of financial rations which can be used for that purpose. This paper describes some of the most important financial ratios.

Specifically, the following ratios will be explained:

- Liquidity ratios: Quick ratio, Cash ratio.

- Financial leverage ratios: Long term debt ratio, Times interest earned ratio

- Profitability ratios: Profit margin, Return on assets, Return on equity, Total asset turnover

- Other Ratios: Price earnings ratio (Value Ratio)

Each ratio has its own value and provides specific information. This paper will less focus on how to calculate the ratios, but more on which kind of information they provide about a firm. In addition, examples will be given on how to leverage the different ratios.