Financial statements analysis.

in LeoFinance2 months ago

How the use of ratios can help when analyzing profitability, liquidity, efficiency and capital structure of businesses

How to calculate the main financial ratios for a company.

Blockchain for Business.


Ref: Pixabay

Ratio analysis involves the comparison of financial data to gain insights into business performance.

The main ratios that would be relevant for a company would be,

  • Profitability
  • Liquidity
  • Efficiency
  • Shareholder ratios
  • Capital structures.

To get the ratios in any of these areas you will need to get the percentages for key figures. If we take profitability as an example we will need a company’s figures to hand. These would be calculated as follows.

  1. Return on Capital Employed
    Net Profit / Capital Employed x 100 = %

  2. Gross Profit Margin
    Gross Profit / Sales x 100 = %

  3. Net Profit Margin
    Net Profit / Sales x 100 = %

To get liquidity we look at assets and liabilities.

For efficiency we look at Turnover, sales and trading ect…

All of the above ratios are an examination of a company’s work broken down from their figures. A ratio is a good indicator for the health of any aspect of the company in short form so that you don’t need to break down financial documents yourself.

All of this information is contained within the financial reports for a company which can then be broken down and taken apart to look at it's actual viability. Understanding how the different figures affect the business is a key part of an financial accountants job and very important due diligence for anybody looking to get involved with the company.

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Amazing tool for seasoned sales people as well.

When working on a big client as a corporate sales guy, I would grab the annual shareholder report, analyse the results vs projected, challenges, and objectives for the next year so that I knew organizational needs that could be met with my solution. I bet if I coupled profitability/liquidity analysis, I would have walked away from a few of the prospects.

Seems like another solid business tactic we can use to choose our blockchains and cryptos!

There is a lot of interesting info in these statements but i find it hard to be interested in looking at balance sheets. However if we apply it to crypto's, i think that you might be on to something.

If you can create a formula to stress test crypto's then you will be a very rich man.

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