Friday 29 September 2017

Financial Ratios

Financial Ratios


Financial ratios can be 'somewhat loosely' classified into different categories.

1. Profitability Ratios 2. Leverage Ratios 
3. Valuation Ratios 4. Operating Ratios

4.The Operating Ratios

The Operating Ratios also called the ‘Activity Ratios’ measures the efficiency at which a business can convert its assets (both current and noncurrent) into revenues. This ratio helps us understand how efficient the management of the company is. For this reason, Operating Ratios are sometimes called the ‘Management Ratios’. 

Strictly speaking, ratios (irrespective of the category it belongs to) convey a certain message, usually related to the financial position of the company. For example, ‘Profitability Ratio’ can convey the efficiency of the company, which is usually measured by computing the ‘Operating Ratio’. Because of such overlaps, it is difficult to classify these ratios. Hence the ratios are ‘somewhat loosely’ classified.

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