Financial Ratios in Excel
Financial statement analysis is useful to anticipate future conditions and, most important, as a starting point for developing strategies that influence a company's future course of business.
An important step toward achieving these goals is to analyze the firm's financial ratios. Ratios are designed to highlight relationships between the financial statement accounts. These relationships begin to reveal how well a company is doing in its primary goal of creating value for its shareholders.
There are two ratio analysis techniques that provide additional insight into a company. The first technique is to compare the ratios of one company with other similar companies within the same industry. The second technique is to observe trends of the ratios over a period. These trends give clues about a company's performance.
The most common financial ratios can be grouped into five general categories:
- Liquidity Ratios
- Asset Management Ratios
- Debt Management Ratios
- Profitability Ratios
- Market Value Ratios
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