Ratio - A ratio is calculated by dividing one number by another. Information from a company's financial statement can be used to develop ratios that can then be compared with industry norms. You can also use ratios to compare a company to its competitors.

Types of Financial Ratios - There are many different kinds of ratios, but they are traditionally classed to reflect five main aspects of businesses: liquidity, leverage, asset turnover, profitability, and market value. For example, the most common liquidity ratio is the current ratio. This is calculated by dividing the company's current assets by its current liabilities.

For more information on calculating ratios and their uses, search your library's catalog for books with the Library of Congress Subject Heading "ratio analysis". 

Each ratio book includes instructions on how to use it, and most tell how the ratios are calculated and how to interpret the numbers. To locate an industry in some of these publications, you will need to identify a SIC code.

Find out more about how MIRA Consulting can help improve your understanding of financial ratios.  Take a moment to call or write today.

Key Benefits

• We review your financial data and compare with industry benchmarks
• We provide you with in depth analysis and comparative knowledge
• Determine your path to profitability
• Measure use of assets
• Appropriate levels of working capital
• Cash flow analysis
• Net Present Value (NPV) as determined by examination of future cash flows
• Internal Rate of Return (IRR)
• Measure your financial performance against liquidity ratios in your industry
• Find out if you are under or over-leveraged (excessive debt)
• Are your operating margins within an acceptable range (industry norm)?
• Compare your expenses to others in your industry

Financial Ratios - by the book

• Based on your industry SIC Code
• Liquidity Ratios - Current ratio, quick ratio, sales to receivables, cost of sales to inventory, cost of sales to payables, sales to working capital
• Coverage Ratios - EBIT to interest, net profit to long term debt
• Leverage Ratios - Fixed assets to net worth, debt to net worth
• Operating Ratios - Profit to net worth, profit to total assets, sales to assets
• Expense Ratios - Depreciation, depletion, and amortization to sales, and compensation to sales

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Where can I find industry ratios and norms?

The most common sources for industry ratio information are:
Industry Norms and Key Business Ratios.
Parsippany, NJ: Dun & Bradstreet Credit Services, annual.

RMA Annual Statement Studies.
Philadelphia, PN: Robert Morris Associates, annual.

Almanac of Business and Industrial Financial Ratios by Leo Troy.
Englewood Cliffs, NJ: Prentice Hall, annual.

Financial Studies of the Small Business
Orlando, FL: Financial Research Associates, annual.

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