Accountants use various ratios to evaluate different aspects of a company.
Three major types of ratios:
- Profitability Ratios—measures the profitability of a company over a period of time.
- Liquidity Ratios—Evaluates the short-term ability of a company to meet its obligations.
- Solvency Ratios—Analysis the long-term viability of a company.
Each major group of ratios have different formulas some will have to be memorized, others your teacher may allow for the use of a cheat sheet.
Ratios can be presented as a;
- Percentage 18% or 0.18
- Rate 0.18 times
- Proportion 0.18: 1
