Financial analysis uses the interpretation of important key financial ratios to understand a company’s financial situation.
We can group those ratios in several categories:
- Liquidity ratios – help to understand whether the company can honor its obligations in the short term and if the level of Net Working Capital is sufficient
- Efficiency ratios – focus on the efficiency of the allocated resources in terms of input/output
- Profitability ratios – determine the company’s returns
- Bank ratios – assess the company’s ability to obtain debt financing
- Valuation ratios – compare the company’s valuation in relation to e.g. Sales, EBITDA etc. to make it easier to compare the company’s valuation to similar companies
Below we have summarized the most useful financial ratios in form of a pocket card.