Four Basic Types of Financial Ratios

Debt ratios

Measure a business's debts relative to its equity

Profitability ratios

Measure the company's efficiency at generating profits

Liquidity ratios

Used to estimate company's ability to pay its short term debts

Asset turnover ratios

Used to measure how efficiently a business uses its assets

Higher ratio

indicates that a company is able to pay off its short-term debts better

Inventory turnover

is measured by dividing the cost of goods sold by the average inventory.

Basic debt ratio

is measured by simply dividing total liabilities by total assets

Receivables turnover

measures how efficiently the business collects debts owed to it, while inventory turnover measures how efficiently goods are sold