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A complete appraisal of analytical tools available to managers to assess performance Required reading for anyone starting, running, or growing a business, Business Ratios and Formulas, Third Edition puts answers at the fingertips of business managers, with nearly 250 operational criteria and clear, easy-to-understand explanations that can be used right away. The Third Edition includes twenty new measurements. Approximately 20 new measurements Offers a comprehensive resource of nearly 250 operational criteria An Appendix including a dictionary of accounting and finance terms A thorough list of every ratio and formula, and how to compile and interpret that information Also by Steven M. Bragg: Fast Close: A Guide to Closing the Books Quickly, Second Edition An ideal tool for measuring corporate performance, this authoritative resource allows you to pick and choose the tools you need to best assess your organization's performance.
A quick guide to essential business formulas and ratios.
Morningstar describes financial statements as "windows into a company's performance and health." They certainly are that, and so much more. As noted in the Searching EDGAR guide, financial statements as found in a company's 10-Q and 10-K reports yield a wealth of data about a company. This data can be plugged into standard formulas, thus producing insights that can uncover otherwise hidden realities about the financial health of the company. These formulas are known as business / financial ratios.
According to the Oxford Handbook of International Financial Terms, ratio analysis is "a collective term for analytical methods based on an organization's financial statements and used as indicators of financial position." The Handbook notes that ratio analysis also can be conducted on non-profit organizations.
Morningstar notes that some ratios are useful in and of themselves, but most are useless if not put into some kind of context (compared against themselves over time; compared against other like companies in an industry, etc.). [NOTE: In order to understand how to find industry benchmarks, you will need to understand the SIC / NAICS system].
Online Sources for Company Ratios
You can find ratios going back 5 years or more for individual companies by going into Standard & Poor's Global NetAdvantage database.
Once you are in the database, search for your company by name or ticker symbol in the "Simple Search" box. After the results for your company are delivered, click on "Financials" in the left navigation sidebar.
Comprehensive tool for finding business and investment information including stocks, bonds, funds, industry analysis, company profiles, corporation records, mutual fund reports, executive information, and industry surveys. Export data to Excel.
In the IBISWorld Database, each industry profile has a "Key Statistics" section that lists several industry ratios going back about 5 years, and with forecasts for 3 years into the future.
Comprehensive full text industry research reports providing analysis and data on key statistics like supply/demand chain, market characteristics, product and customer segments, cost structure, industry conditions, key drivers, major players and market share, recent performance, and 5-year revenue forecasts.
Types of Ratios
Though opinions will vary, in general, typical financial ratios can be classified into the following basic categories (some sample ratios are provided):
Efficiency / Operations: measures how effectively a company utilizes its assets and manages its liabilities
Total Asset Turnover
Leverage / Risk: measures how much debt a company has on its balance sheet
Liquidity: measures a company's ability to meet near-term obligations
Market: measures investors' assessment of a company's performance
Profitability: measures how good a company is at running its business