Financial statement analysis is valuable for understanding a company's financial health and performance. Whether you're an investor, a lender, or a business owner, knowing how to read and interpret financial statements can help you make informed
Financial Statement Analysis
Net Profit Margin: Formula, Calculation, Interpretation
What's it: Net profit margin is a profitability ratio to measure how much profit is left (in percent) after the company has covered all its costs, including interest expense and taxes. We calculate it by dividing net profit by revenue.
Efficiency Ratio: Type, Formula, Interpretation
What's it: An efficiency ratio is a financial ratio to show us how well a company utilizes its assets in relation to its ability to generate revenue. Some examples include accounts payable turnover ratio, inventory turnover ratio, and accounts
Activity Ratio: Types, Formulas, and Interpretations
What's it: Activity ratio is a financial ratio to measure how well a company manages its assets. We then relate it to revenue or expenses to pay suppliers. Some are useful for assessing a company's effectiveness in managing short-term assets
Cash Flow Ratios: Examples, Formulas, and Interpretations
What's it: Cash flow ratios are financial ratios calculated by comparing the metrics in the cash flow statement with other items in the financial statements. For example, cash from operations (CFO) is a commonly used metric. It is an
Liquidity Ratio: Examples, Formulas, How to Calculate
What's it: The liquidity ratio is a financial ratio to measure a company's ability to meet its short-term obligations. Commonly used ratios are the current ratio, cash ratio, and quick ratio. Their calculations are relatively easy because we
Days Sales Outstanding: Formula, How to Calculate and Read It
What's it: Days sales outstanding (DSO) is a financial ratio to measure how many days on average it takes the company to collect on accounts receivable. It is inversely related to accounts receivable turnover. Thus, the lower the
Inventory Turnover Ratio: Formula, Calculation and How to Read It
What's it: Inventory turnover ratio is a financial ratio to show the number of times companies convert their inventory into sales during a given period. It is useful for evaluating management effectiveness in managing inventory. The
Solvency Ratio: Formulas, Examples, and Calculations
What's it: The solvency ratio is a financial ratio to measure a company's ability to meet its long-term obligations. To calculate it, we divide the debt relative to the firm's capital or assets. Or, we compare a company's ability to generate
Current Ratio: How to Calculate and Interpret
What's it: The current ratio is a financial ratio to measure liquidity by considering all short-term assets and liabilities. It is the loosest ratio among other liquidity ratios such as quick and cash ratios.We get the current
Quick Ratio: Formula, Calculation, Interpretation
What's it: The quick ratio is a financial ratio to measure liquidity by excluding some less liquid accounts such as inventory. It tells us how much more liquid current assets can cover short-term liabilities. Inventories and some other
Working Capital Turnover: Formula, Calculation, and Interpretation
What's it: Working capital turnover is a financial ratio to measure how efficiently companies use their working capital to generate revenue. We calculate it by dividing revenue by the average working capital. A higher ratio indicates