ABSTRACT
Managers need to know how well their business is doing from quarter to quarter and to compare it to others within the same industry. One way to analyze business performance is the use of financial ratios. These ratios fall into four categories:
Liquidity ratios. These ratios compute the business's short-run ability to pay its current obligations. Is there enough cash on hand to pay the bills?
Efficiency ratios or activity ratios. These ratios measure how well the company is using its assets. Is management doing its job?
Profitability ratios. These ratios compute profit or loss over a given period of time.
Solvency ratios or coverage ratios. These ratios compute the company's debt obligations.
