Using Financial Ratios
and Accounting Formulas

Applying Financial Ratios and Accounting Formulas to the financial statements can provide valuable insight into the company's profitability, financial strength, and efficiency of operations. This accounting information can then be used to evaluate both the short-term and long-term prospects of the business.

The main Accounting Equation is the basis for understanding the financial statements:

Assets = Liabilities + Owner's Equity

To Review the Accounting Equation Click Here.

From this accounting foundation, each of the financial statement can now be analyzed to evaluate various aspects of the business.

We can apply Accounting Ratios to Financial Statements to measure various performance indicators of the business, most notably:

Key Performance Indicators

1.Financial Condition and Liquidity

2.Management Efficiency

3.Profitability

4.Growth Rates

5.Investment Returns

The links below are categorized into the key indicator of the business measured, as well as the main Financial Statement used with the accounting ratio to provide the accounting information.

Simply click on the links below to get started.

Accounting Ratios Used to Analyze the Balance Sheet

1). Financial Condition and Liquidity

a). Short Term Financial Condition and Liquidity

Current Ratio

Quick Ratio

Working Capital

b). Long Term Financial Condition and Liquidity

Book Value

Debt Equity Ratio

Interest Coverage Ratio (Income Statement)

Leverage Ratio

Click Here to Use Financial Ratios to Analyze the Balance Sheet

2). Management Efficiency

Accounts Receivable Turnover

Asset Turnover Ratio

Inventory Turnover Ratio

Accounting Ratios Used to Analyze the Income Statement

3). Profitability

Gross Profit

Net Operating Income

Net Income

4). Growth Rates

Sales

Net Income

5). Investment Returns

Return on Capital

Return on Equity

Return on Assets

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