Hey guys, it’s me Jerry Garrett, and I’m back with another blog for today. Today, we’re going to be learning about the four financial ratios:
- Profitability Ratios
- Leverage Ratios
- Liquidity Ratio
- Efficiency Ratio
First, the profitability ratio is a measure of how well a company is managing its profits. It determines if there’s a lot of profit, less profit, or no profit at all. Make sure to note all of these ratios and balance sheets, so your company can make better decisions and not just create fancy spreadsheets.
Second, the leverage ratio is a measure of how your company handles debt. Does it have debt? If so, does it pay accordingly? Does it increase the debt more and more, or does it pay regularly, right after, or in a long-term way? That’s what you learn from the leverage ratio.
Next is the liquidity ratio. This ratio determines how a company handles its bills, which is similar to debt, but a bit different. For example, if the company has an office, does it pay rent and electricity? If the company has employees, does it pay their bills and everything like that? That’s what you learn from the liquidity ratio.
Lastly, the efficiency ratio helps determine how companies are using their assets, liabilities, and other items or products. Are they using their assets well, or are they making them worse? Are they trying their best to remove liabilities, or are they just increasing them again and again? That’s what you learn from the efficiency ratio.
That’s it for this week, guys. See you next week.