There are five categories of ratios used in financial statement analysis. These are: (1) liquidity ratios, which measure a firm’s ability to meet cash needs as they arise; (2) activity ratios, which measure the liquidity of specific assets and the efficiency of managing assets; (3) leverage ratios, which measure the extent of a firm’s financing with debt relative to equity and its ability to cover interest and other fixed charges; (4) profitability ratios, which measure the overall performance of a firm and its efficiency in managing assets, liabilities, and equity (Fraser & Ormiston, 2004); and (5) market value ratios, which bring in the stock price and give an idea of what investors think about the firm and its future prospects (Brigham & Houston, 2009).
There are five categories of
ratios
used
in financial statement analysis. These are: (1) liquidity
ratios
, which
measure
a
firm’s
ability to
meet
cash needs as they arise; (2) activity
ratios
, which
measure
the liquidity of specific assets and the efficiency of managing assets; (3) leverage
ratios
, which
measure
the extent of a
firm’s
financing with debt relative to equity and its ability to cover interest and other
fixed
charges; (4) profitability
ratios
, which
measure
the
overall
performance of a
firm
and its efficiency in managing assets, liabilities, and equity (Fraser &
Ormiston
, 2004); and (5) market value
ratios
, which bring in the stock price and give an
idea
of what investors
think
about the
firm
and its future prospects (Brigham & Houston, 2009).