financial ratios

Cash Flow Statement

A financial statement that shows the inflows and outflows of cash within a company over a specific period.

Average Equity

Calculated as the sum of the opening balance and closing balance of equity, divided by two.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold in a company.

Financial Ratios

Metrics used to evaluate a company's financial performance by comparing different financial statement items.

Profitability Ratios

Ratios that measure a company's ability to generate profit relative to its revenue, assets, or equity.

Timeliness of Financial Reports

The relevance of financial information being current and updated in a timely manner for decision-making.

Liquidity Ratios

Metrics that assess a company's ability to pay off its short-term liabilities with its short-term assets.

Average Inventory

Calculated as the sum of opening inventory and closing inventory, divided by two.

Percentage Increase Calculation

(New Value - Old Value) / Old Value * 100; a formula used to determine the percentage increase or decrease.

Limitations of Ratio Analysis

Challenges in comparing ratios due to differences in accounting methods, time lags in reporting, and external economic factors.

Depreciation Methods

Accounting choices regarding how to allocate the cost of tangible assets over their useful lives; e.g., straight-line vs. reducing balance.

Gross Profit Margin

A profitability ratio calculated as gross profit divided by sales, multiplied by 100.

Accounts Payable Turnover

A measure of how quickly a company pays its suppliers, often expressed in days.

Working Capital

The difference between a company's current assets and current liabilities.

Operating Profit

Profit generated from normal business operations, calculated as revenue minus operating expenses.

Non-current Assets

Long-term investments that are not expected to be converted into cash within a year.

Financial Statement Analysis

The process of reviewing and assessing a company's financial statements to make informed business decisions.

Comparative Analysis

A method of analyzing financial statements by comparing a company's performance with that of its peers or previous periods.