Financial Ratios

Financial ratio analysis is a valuable tool that allows one to assess the success, potential failure or future prospects of the company (Bazley 2012). The ratios are helpful in spotting useful trends that can indicate the warning signs of

3. Leverage ratios: this is the use of debt to meet firm’s financial needs. A big firm relies heavily in debt.

The inventory turnover ratio "measures the number of times on average the inventory sold during the period; computed by dividing cost of goods sold by the average inventory during the period" (Kimmel et al, 2007, p. 292). This indicates how quickly a company sells its goods and a high ratio "suggests that management is reducing the amount of inventory on hand, relative to sales" (Kimmel et al, 2007, p. 287).

5. Inventory Turnover: This ratio is rendered by taking the cost of goods sold, for a time period, divided by average inventory. This shows how many times a firms inventory is sold and replaced during the period of time that it is calculated for.

Ratios are highly important profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial structure, reordering, leverage, and interest coverage. Although ratios report mostly on past performances, they can be predictive too, and provide lead indications of potential problem areas. Financial ratios are important because they help investors make decisions to buy hold or sell securities.

Financial ratios play a key role in determining how a company is doing financially either for the good or the bad. Financial Ratios can be used internally or externally to determine how financially stable a company is. For this assignment we will use three common ratios to determine how financially stable and how Under Armour is over the last three years.

There is a essential use and limitations of financial ratio analysis, One must keep in mind the following issues when using financial ratios: One of the most important reasons for using financial ratio analysis is comparability and for this, a reference point is required. Usually, financial ratios are compared to historical ratios of the business itself, competitor’s financial ratios or the overall ratios of the industry in question. Performance may be adjudged as against organizational goals or forecasts. A number of ratios must be analyzed together to get a true and reliable picture of the financial performance of the business. Relying on each ratio

One good example of a financial ratio is the net profit margin, which is used to compare the net income of a business with its net revenue to find out the profit of a specific business earned. This ratio helps the business to know its profit position compared to other businesses in the same industry, and also realise if its profitability is growing or decreasing over different periods of time. Financial ratio analysis is a very important tool in any business; it makes the process of financial comparison between two or more businesses very easy. Directly comparing financial statements is not that effective because different businesses have different sizes. Financial ratio analysis allows easy comparison of financial statements, both in different

The paper illustrates that financial ratio analysis is an important tool for firm’s to evaluate their financial health in order to identify areas of weakness so as to institute corrective measures.

The Interest Earned Ratio shows how a company 's earnings can pay for interest payments on debt.

Financial ratios are great indicators to find a firm’s performance and financial situation. Most of the ratios are able to be calculated through the use of financial statements provided by the firm itself. They show the relationship between two or more financial variables that can be used to analyze trends and to compare the firm’s financials with other companies to further come up with market values or discount rates, etc.

Financial ratios can be used for a quick comparison to other companies in the industry and to the same company over time. They allow you to ignore the numbers and focus on their relationships.

Long term creditors and shareholders are interested in this part of ratios and very carefully to deal with it. It evaluates how the company is using or managing its debt. Debt asset ratio and times interest earned and times interest earned will be calculated in

The calculation of ratios is the calculation technique for analyzing a company’s financial performance that divides or standardize one accounting measure by another economically relevant measure. Financial ratios can be used as a tool to demonstrate financial statement users for making valid comparisons of firm operating performance, over time for the same firm and between comparable companies. External investors are mostly interested in gaining insights about a firm’s profitability, asset management, liquidity, and solvency.

Ratio analysis is generally used by the company to provide some information on how the company has performed during that year, so that the parties involved including shareholders, lenders, investors, government and other users could make some analysis before making any further decision towards that particular company. As mentioned by Gibson (1982a cited in British Accounting Review, 2002 pg. 290) where he believes that the use of ratio analysis is such an effective tool to evaluate the company’s finance, and to predict its future financial state. Ratios are simply divided in several categories; these are the profitability, liquidity, efficiency and gearing.