Details of Financial Ratio Assignment | Best Assignment Writers Blog

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What Are Financial Ratios?

Finance is a vast field of business management which is a necessity for all kinds of business activities regardless of any nature. It plays a vital role in the progression of businesses to stable and to enhance their capabilities to meet the competitive market in the best possible way. It is essential to know for the stakeholders whether the business is performing well or not and the financial ratios help out to check out the financial performance of an organisation or a business. Financial ratios are one of the parameters that evaluate the performance of the business or an organisation. Ratio analysis involves the procedure of comparison of the provided items in the financial statements of the selected organisation. Financial ratios hare required for the businesses at the time of solvency, efficiency, or profitability. The computation of various ratios is what actually matters.

Group of Ratios

There are many types of ratio analysis and detailed computation of these ratios is what exactly confuse students to complete the ratio analysis assignment What I have observed among students is that they tried to memorize the formulas and calculations instead of getting the right understanding of the procedures. It is highly recommended for the students to understand this topic instead of memorizing it. The Best assignment help can assist you in completing your ratio analysis assignment effectively and efficiently. Let us see some of the most important and basic ratio analysis.

Liquidity Ratios

Liquidity ratios are one of the types of financial ratios that help the organisation to pay back the short term and long-term loans. It actually shows the ability of the debtor to pay out its debts from its current assets without raising any extra capital externally. The liquidity ratios are further divided into three subcategories, which include the following;

Current Ratio

Current ratio = Current assets / Current liabilities

Acid-Test Ratio

Acid-test ratio = Current assets – Inventories / Current liabilities

Cash Ratio

Cash ratio = Cash and Cash equivalents / Current Liabilities

Leverage Financial Ratios

Leverage financial ratios are one of the types of financial resources that helps to check the amount of capital that is raised through debts. It actually evaluates the debt level of an organisation or the business. The leverage financial ratios include the following;

Debt Ratio

Debt ratio = Total liabilities / Total assets

Debt To Equity Ratio

Debt to equity ratio = Total liabilities / Shareholder’s equity

Interest Coverage Ratio

Interest coverage ratio = Operating income / Interest expenses

Debt Service Coverage Ratio

Debt service coverage ratio = Operating income / Total debt service

Efficiency Ratios

It is one of the most required types of financial ratios that help to calculate and to determine how good a company is managing its available resources and the provided assets. It actually tells if the organisation is efficient to provide the best possible results using the limited resources. Let us see some of the types of efficiency ratios.

Asset Turnover Ratio

Asset Turnover Ratio = Net Sales / Total Sales

Inventory Turnover Ratio

Inventory Turnover Ratio = Cost of goods sold / Average Inventory

Receivable Turnover Ratio

Receivable Turnover Ratio = Net credit sales / Average account receivable

Days Sales In Inventory Ratio

Days Sales in Inventory Ratio = 365 days / Inventory turnover ratio

Profitability Ratios

Profitability ratios help the organisation to check the performance. The performance of the organisation includes return on investment, return on sales, operating margin, and return on asset, gross profit margin, and many more. Let’s see some of the types of profitability ratio that helps the business to acknowledge its profits.

Gross Margin Ratio

Gross Margin Ratio = Gross Profit / Net Sales

Operating Margin Ratio

Operating Margin Ratio = Operating Income / Net Sales

Return On Assets Ratio

Return On Assets Ratio = Net Income / Total Assets

Return On Equity Ratio

Return On Equity Ratio = Net Income / Shareholders’ Equity

Market Value Ratios

Market value ratio shares are one of the most important types of financial ratios that help to determine the current share price of a public held Company stocks and further assist to determine whether the company’s share is overpriced or under priced. Let’s see the types of market value ratios.