1. What is a Financial Ratio?

A financial ratio is a relative magnitude of two selected numerical values taken from a company's financial statements. Ratios are used to evaluate various aspects of a company's operating and financial performance.

2. How Does the Calculator Work?

The calculator uses the basic ratio formula:

Where:

• Numerator — The top number in the ratio calculation
• Denominator — The bottom number in the ratio calculation

Explanation: This simple division provides insight into the relationship between two financial metrics.

3. Importance of Financial Ratios

Details: Financial ratios are essential tools for financial analysis, helping investors, analysts, and managers assess a company's profitability, liquidity, efficiency, and solvency.

4. Using the Calculator

Tips: Enter both numerator and denominator values in dollars. Both values must be positive numbers, and the denominator cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What are common financial ratios?
A: Common ratios include current ratio, debt-to-equity, return on equity, profit margin, and price-to-earnings ratio.

Q2: How are financial ratios interpreted?
A: Ratios are typically compared against industry benchmarks, historical performance, or competitor ratios to assess financial health.

Q3: What is a good ratio value?
A: The interpretation varies by ratio type and industry. For example, a current ratio above 1.0 is generally considered healthy for liquidity.

Q4: Are there limitations to financial ratios?
A: Yes, ratios should be used in context and considered alongside other financial metrics and qualitative factors.

Q5: How frequently should ratios be calculated?
A: Financial ratios are typically calculated quarterly or annually using the most recent financial statements.