Accounting ratios, an important subset of financial ratios, are a group of metrics used to measure a company’s performance and profitability based on its financial statements.
Accounting ratio compares two line items in a company’s financial statements, namely those compiled from the income statement, balance sheet, and cash flow statement.
These ratios can be used to assess the company’s key performance indicators and provide information on the company’s performance for the last quarter or financial year.
General accounting ratios include debt-to-equity ratio, quick liquidity ratio, dividend payout ratio, gross profit and operating profit.
Accounting ratios are used both by the company itself to improve or track progress, and by investors to determine the best investment option.
The acid test, or quick ratio, compares a company’s shortest-term assets to its shortest-term liabilities to see if the company has enough cash to pay off its immediate liabilities, such as short-term debt.
Activity Ratio broadly describes any type of financial measure that helps investors and analysts evaluate how effectively a company is using its assets to generate revenue and cash.
Performance Based Management (ABM) is a means of analyzing a company’s profitability by looking at every aspect of its business to determine its strengths and weaknesses.
Benefit Cost Ratio (BCR) is a measure showing the relationship between the relative costs and benefits of a proposed project, expressed in monetary or qualitative terms.
The CAPE ratio is used to analyze the long-term financial performance of a public company, taking into account the impact of various economic cycles on the company’s profit.
Capital expenditures are payments for goods or services that are recognized or capitalized on a company’s balance sheet, rather than expensed on the income statement.