ABSTRACT
This chapter presents financial ratio analysis, a common methodology for analyzing financial performance. Ratio analysis uses a multitude of financial factors to analyze different segments of a company. The chapter discusses financial ratio analysis are, liquidity ratios, activity ratios, profitability ratios, leverage ratios and stock market ratios, airline-specific financial ratios, airline industry benchmarking, predicting insolvency and Altman’s Z-score model. Prior to calculating ratios, it is important to understand the concept of net working capital, referred to as working capital, which is simply the difference between current assets and current liabilities. The quick ratio is the ability of a company to meet its liability by using its quick assets. The asset turnover ratio measures total revenue against the total assets of the company. Every investor and other stakeholders of a company are most interested in its profitability. One profitability ratio that can be particularly useful in standardizing large and small-sized companies is the return on assets ratio.
