Financial Ratios

Types of financial ratios and their importance. Why financial ratios are important for managers stockholders and creditors

ACCT 600 MANAGERIAL ACCOUNTING covering financial ratios. This memo is being done to explain and show the financial ratio computations using the company's financial statements.

Financial ratio analysis helps analysts to identify problem areas and opportunities within a firm and investors to derive safe conclusions about a firm's relative performance over time, thus making informed investment decisions.

Financial ratios can be used by a company's management, shareholders, and creditors to evaluate policies, processes, and performance. There are a variety of types of financial ratios which can be used for analysis.

Typically, investors calculate a five- or ten-year average ratio considering the time-series trend of relative financial ratios compared to the industry and the economy to derive safe conclusions about a firm's relative performance over time.

This is an introductory overview of commonly used financial ratios and their short-comings.