Managerial Accounting, v1.0: "Chapter 13, Section 3: Ratio Analysis of Financial Information"

The most robust type of analysis is ratio analysis. A ratio is a comparison of two numbers and normally takes the form of a fraction, decimal or percentage. A ratio can be specific to a company, to companies within a region, to an industry or to a stock exchange. Ratios are versatile and powerful. Ratios are powerful. In the text you are shown how to use ratios to explain and compare companies, to companies or companies to industries.


Coca Cola  

Pepsi Co. 

Beverage Industry

Profit margin ratio

34%

11%

20%

 

There are four basic types of ratios that you will learn about: 

  1. Ratios used to measure profitability
  2. Ratios used to measure short-term liquidity
  3. Ratios used to measure long-term solvency
  4. Ratios used to measure market valuation.