How would you characterize financial ratios?
A. Financial ratios are those numbers that compare the net worth from the balance sheet to the net income of the income statement.
B. Financial ratios are calculated numbers that identify various performance aspects of a business.
C. Financial ratios are those numbers found in the statement of cash flows
Answer: B. Financial ratios are calculated numbers that identify various performance aspects of a business.
These measurable tools of influencing financial ratios are formulas which assimilate information from a company’s financial statements, such as the balance sheet, income statement and cash flow statement. These ratios are found or derived through the comparison of different financial metrics, which allow one to effectively gain insights about various aspects of a business such as its financial performance, health, and operations.
Ratios can be used for such purposes as assessing profitability, liquidity, conjunctive ability, efficiency, capital adequacy, and market value. Through portals performance they enable a wide range of stakeholders, which go beyond only managers, investors and creditors, to quickly and more in depth analyze information on both the company’s financial strengths or weaknesses and trends against defined benchmarks. Financial indicators should be prioritized for operations decisions, risk evaluation, and remedies available within an enterprise.