Introduction to Ratios definitions Flashcards
Introduction to Ratios definitions
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Ratio A numerical comparison showing how many units of one quantity exist for each unit of another, often expressed as a decimal or fraction. Financial Analysis The process of evaluating financial data to make informed decisions about a company's performance and prospects. Liquidity Ratio A measure indicating a company's ability to meet short-term obligations using its most liquid assets. Solvency Ratio An indicator of a company's capacity to meet long-term debts and financial commitments. Financial Leverage Ratio A metric assessing the extent to which a company uses borrowed funds to finance its assets. Efficiency Ratio A calculation that evaluates how effectively a company utilizes its assets or manages its liabilities. Profitability Ratio A tool for measuring how much profit a company generates relative to sales, assets, or equity. Market Value Ratio A comparison involving a company's stock price and other financial figures to assess investment attractiveness. Numerator The top part of a fraction or ratio, representing the quantity being compared per unit of the denominator. Denominator The bottom part of a fraction or ratio, indicating the reference unit for the comparison. Benchmarking The practice of comparing a company's ratios to those of competitors or industry averages to gauge performance. Threshold A specific value or limit used to interpret whether a ratio signals acceptable or concerning performance. Book Value The value of an asset or equity as recorded on the balance sheet, often based on historical cost. Market Price The current value at which a company's stock is traded in the open market, reflecting investor sentiment. Industry Average A standard or mean value of a particular ratio calculated across multiple companies within the same sector.
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