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