Q1. List of financial ratios

What are the key financial ratios that can be used to analyze the operations of an entity?

A1.

Financial ratios can be grouped into the following categories:

(1) Profitability ratios

Ratios that provide information about the profitability of an entity include the following:

a. Profit margin ratio

b. Gross profit ratio

c. Return on assets (ROA)

d. Return on equity (ROE)

e. Earnings per share (EPS)

(2) Activity ratios

Ratios that provide information about the activity of an entity include the following:

a. Assets turnover ratio

b. Inventory turnover ratio

c. Accounts receivable turnover ratio

d. Accounts payable turnover ratio

(3) Liquidity ratios

Ratios that provide information about the liquidity of an entity include the following:

a. Current ratio

b. Quick ratio

c. Working capital ratio

(4) Solvency ratios

Ratios that provide information about the solvency of an entity include the following:

a. Debt to equity ratio

b. Debt to assets ratio

c. Long-term debt to assets ratio

d. Times interest earned ratio

e. Assets to equity ratio

(5) Cash flow ratios

Ratios that provide information about the cash flows of an entity include the following:

a. Cash flow return on assets

b. Current debt to cash flow ratio

c. Debt to cash flow ratio

d. Free cash flow

(6) Stock market related ratios

a. Price earnings (P/E) ratio

b. Price to book ratio

c. Dividend payout ratio

d. Dividend yield