Common Ratios in Financial Analysis
Financial analysts use many ratios while analyzing a company. Since there are many ratios, it becomes easy to categorize them under broad categories. The following table lists the categories and the key ratios within each category.
| Category | Description | Key ratios |
| Activity ratios | Activity ratios measure how effectively a business uses its resources, such as receivables collection, inventory, etc. Also called efficiency ratios |
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| Liquidity ratios | Liquidity ratios measure a business’s ability to meet its debt obligation in the short-term |
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| Solvency ratios | Solvency ratios measure a business’s ability to meet its obligations in the long-term. Also called leverage ratios. | Debt Ratios
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| Profitability ratios | Profitability ratios measure how profitable a company is. | Return on Sales
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| Valuation ratios | These ratios measure the value of a company. |
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An analyst uses a combination of these ratios to analyze various aspects of a business. We will look at all these ratios in the following articles.