Financial ratios are critical tools that help leaders interpret data from financial statements. Key ratios include:
Liquidity Ratios: Measure the company's ability to meet short-term obligations (e.g., Current Ratio, Quick Ratio). Profitability Ratios: Assess the company’s ability to generate profit relative to sales, assets, and equity (e.g., Net Profit Margin, Return on Equity). Leverage Ratios: Examine the extent of a company’s financial leverage and debt (e.g., Debt to Equity Ratio). Efficiency Ratios: Indicate how well the company uses its assets (e.g., Inventory Turnover, Accounts Receivable Turnover).