Financial statement ratios. Ratios and formulas in customer financial analysis. For example a companys depreciation expense is based on the cost of the assets it has acquired and is using in its business. These relationships between the financial statement accounts help investors creditors and internal company management understand how well a business is performing and of areas needing improvement.
General discussion of income statement. Financial statement analysis is a judgmental process. Financial ratios are relationships determined from a companys financial information and used for comparison purposes.
2012 by national association of certified valuators and analysts nacva. Financial ratios are mathematical comparisons of financial statement accounts or categories. 105 a pro forma financial statement is defined as a financial statement prepared on the basis of some assumed events and transactions that have not yet occurred.
Examples include such often referred to measures as return on investment roi. John rollins yale university press the aaup business handbook part two. The income statement has some limitations since it reflects accounting principles.
Some financial ratios such as net sales to net worth ratio and net income to net sales ratio are called primary because they indicate the fundamental causes underlying a companys strengths and weaknessesothers such as current assets to current. To make the topic of financial ratios even easier to understand we created a collection of premium materials called accountingcoach proour pro users get lifetime access to our financial ratios cheat sheet flashcards quick tests business forms and more. Introduction to financial ratios.
In ralph estess dictionary of accounting mit cambridge 1981 p. One of the primary objectives is identification of major changes in trends and relationships and the investigation of the reasons underlying those changes. Analyzing your financial ratios.