Financials Analysis helps assess company’s financial health, profitability, efficiency, and risk. Acts as a quantitative framework for decision-making, valuation, and strategic planning.
Liquidity Ratios, Current ratio and quick ratio help assess a company’s ability to meet its short-term financial obligations. A high liquidity ratio indicates good financial health and the ability to cover short-term debts.
Solvency Ratios: Ratios like the debt-to-equity ratio and interest coverage ratio provide insights into a company’s long-term financial stability. Low solvency ratios may indicate high financial risk and the potential for bankruptcy.
Profitability Analysis: Gross margin, operating margin, and net profit margin ratios reveal how efficiently a company converts sales into profits. Comparing these ratios over time or against industry benchmarks helps assess profitability trends.
Return Ratios: Return on assets (ROA) and return on equity (ROE) ratios measure how effectively a company generates profits relative to its assets and shareholders’ equity. These ratios help investors understand the company’s profitability and the return they can expect on their investment.
Asset Turnover Ratios: These ratios, such as inventory turnover and accounts receivable turnover, show how efficiently a company uses its assets to generate revenue. High turnover ratios suggest effective asset management.
Days Sales Outstanding (DSO): DSO measures the average number of days it takes a company to collect payments from customers. A lower DSO indicates efficient accounts receivable management.
Operational Efficiency: Operating expense ratio or overhead ratio help assess how efficiently a company manages its operating costs.
Debt Ratios: Ratios like the debt-to-equity ratio and interest coverage ratio help evaluate a company’s financial risk. High debt ratios and low interest coverage ratios may indicate higher financial risk.
Trend Analysis: Examining financial ratios over multiple periods helps identify trends in a company’s financial performance. It can reveal whether financial health is improving or deteriorating.